A group of 4 of us all have an interest in beginning real estate investing. We have decided to begin an LLC to assist us all in pooling money and beginning with rentals. Is 4 total people too much? Do you have experience with this and what was the result? Any suggestions?
@Justin Hazel I'm in the midst now of forming an LLC of four as well, and I also have another entity that is a group of three and we've been together for over six years.
In the case of my 4-person company, one of us has experience in class-A Multifamily acquisitions several states, one is an expert at underwriting and operations, one is a corporate and securities attorney and can draft our offering documents and contracts and just generally keep us out of trouble and the fourth is experienced at raising money from high net worth investors and the retail broker/dealer channel.
The critical take-away here is that we all bring a different skill set and can make a different contribution. If you four all bring the same skill set, it isn't a partnership it's a support group. You don't need a clone of yourself as a partner, and you don't need someone that you can hire as a partner (like contractors). Either build a diversified team and conquer, or do it alone and share stories with each other over coffee or beer.
Brian is absolutely right! There needs to be an exchange of resources that makes a partnership worth it.
I have a partnership where I expected to be a passive member but ended up taking on much more day to day stuff because everyone wanted to be passive... I learnt that personally, I can't be a passive partner.
Another one, I do all the leg work but my partner brings guidance and financial resources. My partner being much more experienced also pushes me to stretch beyond my comfort zone. He also supports me along the way. This one is very beneficial.
Whatever it is, make sure everyone can get along and everyone has something to contribute. If there are people who want to be silent, make sure they are silent.
@Justin Hazel Look closely at what @Brian Burke has to say.
For me, I regularly put together my partnerships with 3 members, but that's because each member has a specific reason for being there, and they know going in what their roles and responsibilities are. We also lay out our "exit strategies" for each deal at the time of analysis of that deal, so our business plan is set from the beginning for every property, and thus every partnership.
Four is not too much, neither is 400. How do you expect to grow? You will need more people. The key is to define each persons responsibility...asset acquisition, financing, construction management, lease negotiations...etc.
@Zoran M. I agree that four might not be too many (subject to my previously mentioned caveats), but 400 is way too much. Well, 400 investors isn't too much, and 400 employees isn't too much, but 400 partners would be a disaster.
For a novice investor, all of your replies and knowledge is extremely helpful! We most definitely need to layout our "plan," and then move on from there. Defining each role is something that I have thought about, but hearing most of you mention this makes me see that we need to clearly define roles and stick with them!
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