New LLC for first STR property. How should it be set up?

Question

I have 1 other post that explains my situation where I am the loan borrower and take on all the financial liability but am in business with 3 others who are on the home Title.

2 of the 3 others couldn't get approved for the loan so I took it on myself so that we could get the house.

I'm wondering what would the preferred setup method should have been. A new LLC with no business income/credit history. How would you have gone into business in this scenario?

Nathan Gesner · Answer

Whether you use a trust or an LLC, there definitely needs to be a clear delineation of responsibilities. Who is responsible for marketing? Taking phone calls from prospective renters? Collecting payments? Disbursing distributions and owner statements? If the furnace requires replacement, who collects bids and supervises the project? Who pays for the new furnace? What if there's a disagreement? What if one partner wants to leave?

So many questions.

Shiela R. · Answer

@Michael DeCicco hello :)  What do these other partners bring to the table, since you have leveraged your own credit?  In other words, how or why are they good partners?  This will help me understand and suggest a fair partnership agreement...

Shiela R. · Answer

Okay @Michael DeCicco.  I see, every partner has put down 25%. However, you are also using your credit.  So, at a glance, you have more at stake than the rest of them. I should start by saying I do not partner easily.  I am mostly against shared ownership on SFH.  You should def consult an attorney and a CPA who is a tax strategist. BUT, off the cuff, I would structure it as a land trust where the property is the name of the trust (123 Main St Trust) and all partners are beneficiaries - but you are the trustee.  The trustee has the control.  Then, have a co-beneficiary agreement that is tied to the land trust that looks more like a JV agreement defining each partners roles, responsibilities, income/equity split, etc.

I hope that is helpful!  There are many ways to structure partnerships, in my experience.

Michael DeCicco · Answer

@Shiela Roberts I have 3 business partners, I am the 4th. All four of us have a 25% investment/stake. (i.e. we have each contributed $20k to the business) Correct, the loan is in my name. All four of us business partners will run the STR and complete the necessary duties for the business to run efficiently.

Shiela R. · Answer

Okay, so you put in the other 50% on down payment and operational costs + the loan is in your name, yes @Michael DeCicco?  Who is "running" the STR?  A pro management and turnover company, one of the partners?

Michael DeCicco · Answer

25% cash investment from each partner for down payment, mortgage, repairs, supplies, running the rental.

New LLC for first STR property. How should it be set up?

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