Need advice, partnership, 1st prop. LLC??

Question

Hi all. My 1st post on this board, and I hope this is a welcomed question.

First off, I am 21 years old in Atlanta, GA. I work with my father at a Land Development company, I manage various rental properties, I do land planning, and I do a long list of other stuff from permiting to web design to taking the trash out every once in a while. :D

Now for the question, after I blabbed out some most likely usless background information.

My friend (long time friend) and I are thinking of buying our first piece of "investment" property. We plan to make this prop. a rental piece. I have planned on just making a LLC with us two as the owners and buying the property under the LLC. All loans, improvments, rental fees will be directed to the LLC. Today I got a call that makes me question if thats the right thing to do. I have gotten my fathers "executive summary opinion" (if you will). Basically I was hoping for a little input on if making a LLC for my partner and I is the best route, or is there a better alternative?

Danny Kay · Answer

woods,

thanks for the reply. I emailed my banker today, to see what he can do. And if he would have a problem lending the LLC money. In the past, we (the company and I) have made LLCs for each development project. Which is common, and they have had no problems with that (they actually prefer it). But since this is smaller loan, they might not like the idea. I will just have to wait to hear back from him (banker). The lending aspect of the LLC is the thing that got me questioning weither its the best thing to do. And me and my friend have talked about a co-app purchase then transfer it to the LLC. We will see, right now it depends on my banker. Thanks for the input Woods!

FYI: my partner/friend and myself are not "new" to real estate. He is a agent and i am involved pretty heavily in development. This is just slightly skewd from our normal routine. :D

N/A N/A · Answer

what if you can count on them isn't that different??

Jason Shaffner · Answer

Ain't that the truth.  Here is my 2c.  I have owned five businesses.  All partnerships.  Only one worked.  And that one was broken up and sold for other reasons.  When it comes to money and work I just don't think people can work it out with each other.

However, I have never used a strictly financial backer before, someone just providing the money.  Not sure if that's any better.

I'd be interested to see if someone has made it work.

Good Luck,

NavyDoc

Michael Mulrooney · Answer

You can count on them now, but problems arise later. All partnerships start out fine until the work starts. I understand your thoughts. I am curious about anyone elses's thoughts. I listen to Dave Ramsey alot and he is totally against partnerships in Real Estate and his reasoning is the same as mine.

Michael Mulrooney · Answer

Taking the LLC out of the picture, I would never buy a property with a partner. One partner always feels like they are doing all the work and it almost always ends in a dispute. This is a bad idea.

LLC's are the way to go but you will probably need to establish your business first as a sole proprietor first and then begin transferring a few properties.

Again, please rethink the partner idea. Never do business with friends or family.

N/A N/A · Answer

it is very difficult to lend on new LLC.  You would need to get funded in your name, then transfer the deed to the LLC for all the tax & liability benifits.  Untill the LLC start to build credit from my understanding its really hard to lend money to it.  Theres a very nice lady that my family all used to open our LLC's, Shes very knowledgable, if youd like to give her a shout to talk about LLC's sent me a message.  She can help with all your questions.

Danny Kay · Answer

Thanks for the info Joe! I dont think I will need her number. We do our filings in house for our LLC, so I will just find out how to do it from our assistant. And plus, my county just started doing LLC online filing, all from one place. So i think that should make it easy.

So basically, it comes down to credit of the LLC for financing. Hmm.. We have a great banker at Regions, Im almost positive I can get financing from him. We will see.. Thanks for the input guys!

Derek Guyer · Answer

Danny,

First of all, Welcome!

Second, that's something you need to take to a good real estate attorney. Everyone has a different opinion on this subject, but their opinion makes little to no difference. Go talk to someone with the expertise. The money you will spend will be well spent and save you a ton when problems arise later and you're covered because you set everything up correctly from the beginning.

Third, good luck!

Derek

Danny Kay · Answer

well Im asking for your opinion ;) :D

and as far as I can research, the LLC is the most popular choice for REIs.

I have to call my banker today and see what rates he can get me and see what he recomends as far as loan types go. Might give my RE attorney a email, we will see. My RE Attorneys bills are quite alot, so I have to figure out what exactly to ask.

Thanks for the input! :D

N/A N/A · Answer

Congrats!!  And Welcome!!

I would suggest that you consult an attorney as well.  You want to make sure everything is spelled out.  You would HATE for a few dollars to ruin a friendship.

One other thing to consider.  Lenders may have a problem giving an LLC money to buy a property.  You probably would have better luck buying it as Co-Applicants, then transfering title to the LLC.

Woods
www.LoansInAnyState.com