BRRRR with a friend: LLC or no?

10 Replies

So, I have a friend (the Money) who I want to start investing with in BRRRR SFH deals. I'm wondering what the upsides and downsides of forming an LLC together for investing are? Also, does anybody have investing partner contracts / paperwork? I'd like to see what other people are doing contract-wise so that I can come up with one that makes sense for us. Thanks so much in advance!

-joe

Best advice you can get on this is: Make a very transparent list of goals and rules. Both of you sign it and date it. Your rules and goals are going to be personal to your needs. Just being honest with each other and upfront will go further than anything else. I have a LLC partner in RE that is a long time friend. It can work really well. Good luck

Thanks so much, Ted! I'm hoping to also understand the upsides and downsides of using an LLC for BRRRR deals, since I'm new to this. I'm assuming that most lenders won't lend to LLCs, correct? I'm not sure how the purchasing is handled if you're running an LLC... Cheers!

If you plan on doing this just once, it's probably not necessary to have an LLC. But if you're going to be buying several, I would definitely create an LLC, and like Ted said, make clear rules and be really open and honest with eachother about what is expected.

I'm wondering the same question - if not going the LLC route, are there any standard partner contracts examples available to ensure that both parties are protected in case the deal goes south?

Ok, I understand that having an LLC will protect us, but I don't understand how to acquire properties as an LLC. If we form an LLC, one or both of us still apply for mortgages under our names, right? Thanks!

@Joe Bourguignon I just started an LLC with a few partners and I am in the same boat as you, trying to find out how to get financing as an LLC. I believe you have to try and establish credit for the LLC, maybe getting a credit card in the LLC name. there are also other ways to build LLC credit which I am currently researching right now.

the first property you acquire might have to be under your personal name until your LLC can establish a credit, to which the bank might then lend you.

@Dan F. ,  I'm also wondering where to find standard partner contracts.  @Andrew Syrios , have you found any standard ones that you prefer?

Also, I've heard that a lot of people start a separate LLC for each property; is that way more cumbersome than necessary, or is it a good idea? Does that make it necessary to have separate bank accounts for each LLC?

Thanks!

From my exploration on LLC with a partner, be aware that there are outside and inside liabilities.

Few examples of bad things:

A partner or you, say, can faces a huge lawsuit loss and judgment against his assets includes LLC

 All debt belong to both of you, if one takes a huge debt without your awareness , it will be in name of both of us  

I am also looking into how to limit such exposure, maybe it is all about operating agreement at this point.

Wish you both good luck, hope it will work well.

Starting up an LLC you will need to put the notes in your personal names and not the LLC. Definitely work with a lawyer to type up an Operating Agreement to suits both of your needs/goals. Should cost about ~$500 for everything. I like the idea of both of you putting your goals down on paper and signing it as a starting point to take to your lawyer. Good luck

Thanks, @Ben Freiman and @Oleg P. !  An Operating Agreement definitely seems like a great idea.  

I suppose another way I could structure this would be to make my own LLC that he is an investor in, since he wants to basically be a silent partner (ie just Private Money). Then, I could just make him an offer of what he'll benefit from the deal. What do those agreements look like, generally? I'm sure they're all over the board, but any starting point right now is helpful! Thanks!

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