Rental Property Investor · Raleigh, NC · Member since 2019 · 10 posts · 3 votes
Hello all, I'm looking to start investing in small-medium sized apartment complexes and I'm trying to figure out the best way to set up a business entity. I would be funding the down payment and closing costs with capital partners and offering them 70% equity.
From what I understand I would form an LLC with my partner so both of our names would be attached to it. If I did this, I would have to form a new LLC if I wanted to partner with a different investor on another deal. So, would it be better to form a sort of 'personal' LLC that I am the sole owner of and keep my partners on the outside of that? How would I even structure that, legally speaking?
Sorry if this seems like a dumb question, but this side of real estate continues to elude me for now.
Attorney and Real Estate Broker · Madison, WI · Member since 2016 · 265 posts · 100 votes
4y
It is fairly simple in half the cases. Most of the time forming a partnership is just forming an LLC with 2 or more owners. When you have passive investor partners, you start talking SEC issues. You can form your own LLC and then have that LLC join the partnership LLC if you want. These complexities are simple in concept, but are necessarily based on written agreements: entities are mute and do not talk to each other other than what is written down. I hope that helps.
Attorney and Real Estate Broker · Madison, WI · Member since 2016 · 265 posts · 100 votes
4y
It is fairly simple in half the cases. Most of the time forming a partnership is just forming an LLC with 2 or more owners. When you have passive investor partners, you start talking SEC issues. You can form your own LLC and then have that LLC join the partnership LLC if you want. These complexities are simple in concept, but are necessarily based on written agreements: entities are mute and do not talk to each other other than what is written down. I hope that helps.
Attorney · Slidell, LA · Member since 2016 · 322 posts · 179 votes
4y
Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.
This sounds like a syndication. A typical structure would be a two LLC model. One is the "management" LLC, which the sponsors run. This LLC finds the property, buys it, fixes it, gets renters, etc. It puts the deal together. Then there is an "investment" LLC which actually owns the property. The sponsors and the investors all get a part of the investment LLC. If the sponsors do other deals, that can be done with the management LLC, but each deal would typically have a new investment LLC. [note I am not getting into series LLCs here]
However, once a deal has passive investors, then as mentioned, the SEC regulations kick in. This means regulatory exemptions, restrictions on who can invest, rules on advertising, and more. It's complicated and an attorney needs to be involved.