What are major key points to include in an operating agreement with a partner?

[Zoë Funk]

I'm currently looking to purchase my first investment property this year and have determined that I will need a partner to help me purchase. I have some family that are interested and I feel as though we will make good partners. I do want to set clear boundaries especially since it is family, and make sure we all understand our business responsibilities to this investment. 

When setting up an operating agreement with a partner, what are key points, or main factors that are important to include? Also, what are other factors that many first time investing partners do not consider when starting out on their first purchase?

[Jared Hottle]

When setting up an operating agreement with a partner, there are several key points that should be included:

1. Distribution of profits and losses: This should include how profits and losses will be shared among the partners, as well as how they will be allocated for expenses such as property management, repairs, and maintenance.
2. Decision-making authority: This should outline who has the authority to make decisions regarding the property, such as whether to buy or sell, and how disputes will be resolved.
3. Capital contributions: This should include how much money each partner is contributing to the partnership and how it will be used.
4. Exit strategy: This should outline how partners can exit the partnership, such as through buyout provisions or the sale of the property.
5. Role and responsibilities: This should outline the specific roles and responsibilities of each partner and how they will be held accountable for their actions.

Other factors that many first-time investing partners do not consider include:

1. Liabilities and Indemnification: Outline the specific liabilities and indemnification that each partner will have in case of any legal issues.
2. Tax implications: This should include how taxes will be handled and reported for the partnership and how it will affect each partner's personal taxes.
3. Insurance: This should include what kind of insurance will be in place to protect the partners and the property.
4. Legal and accounting: This should include who will handle the legal and accounting aspects of the partnership, and what the costs will be.
5. Risk management: This should include how the partners will handle and mitigate any potential risks associated with the property.

It's important to have a clear, written agreement in place that covers all of these key points and other factors, to avoid any confusion or disputes down the road. It's also important to consult with a legal professional to review the agreement before signing it.