Forming a Partnership

4 Replies

So, this weekend my wife and I, plus our "partners"(her cousin and his wife) are all sitting down to discuss our plan for our first property. We are still in the beginning stages. We are going to talk about meeting with our RE attorney, accountant, insurance agent(wife's aunt), our goals/mission, etc.

Can anyone give me some good pointers on discussion points that we need to bring up? There is so much for us to discuss, and I want to make sure that we have the most productive meeting possible this weekend.

First thought, be careful when working/partnering with family and make sure everyone is on the same page in terms of roles/responsibilities/profit split ahead of time. Do not just assume both sides know how the profits and responsibilities will be split. Otherwise you risk ruining a relationship over money, happens way too often.

It can still work, and could be beneficial based on your existing friendship, but don't let money ruin that.

i would recommend using a LLC [ and ] a S corporation.

A limited liability company must file articles of organization with the state, it has a more flexible management structure than a corporation. The flexibility evolves from the phrase “unless otherwise provided for in the operating agreement.” This allows business owners to create a structure tailored to the business owner’s requirements.

The biggest advantage of using a S corporation is that the company is taxed as a pass-through entity, which means it avoids double taxation on gains. The company's gains and losses skip taxation at the corporate level and get reported directly on each shareholder's income tax return. For example, if you own 10 percent of an S corporation, and the company makes $1 million, you report $100,000 of income on your personal tax return. This also allows you to use company losses to offset other sources of income.

I would definitely formalize the partnership using an LLC or S corp. Forming your real estate team is important so everyone knows the roles involved in a real estate transaction, what each person's strengths and weaknesses are, and what roles is each person playing.

I would then develop an investment model that clearly shows how you intend to manage each deal and what are the entry and exit points of the investment.

God Bless You!

Thank you all for your posts. i do have some questions about the S-corps though. I have a bba and mba, but i don't remember much about the S-corps. Must have been asleep in that class! How would it work with the following situation...we don't plan on taking any profits from the rental, and our goal is to buy 1 every year or so. I realize that is a lofty goal for someone who doesn’t even own one yet, but we are financially ok, and when I set my mind to something, I do it. So tax wise, how would this work on our personal taxes? Also, does an S-corp provide any protection of our indivial assets(personal homes, etc.)?

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