How do I structure my LLC if I planned on acquiring Investors

Question

So I've been breaking my head for the past couple of weeks, and no accountant or attorney have been able to point me in the right direction for how my LLC should be structured. (Disclosure I'm a Newbie investor, for now) (New Jersey)

Basically my business will work this way. I'll look for an investor then find a deal. He funds the full deal from property acquisition to renovation, etc. I ran the whole project and he'll just be updated on progress. After we sell the property we will splits profits as agreed upon, (30/70, 40/60)whichever. So here's my question, how/what is the best way to structure this business Model. I will be full owner of my LLC, ABC LLC, but I do not want to add investors as partners in my business because I do not want to end up with 10 different partners under my LLC as my business grows. Each investor will fund their seperate deal, Investor A gives me funds we buy Property A, investors B gives me funds we buy Property B and so on.

How do I structure this model, do I need new LLC with each investor I get, Limited Partnerships, have my LLC be the parent company of the others LLC, any ideas or can someone clarify this or even ask questions to maybe help me figure this out.

Daniel Kent · Answer

@Marco Cruz hi Marco! First of all, I am not an attorney....

But one of my greatest difficulties/confusions has been the same topic, structuring an LLC with a partner and various deals.

From what I understand, it is simplest to create separate LLCs for your deals with different partners. The only way to change partners but keep the LLC, the new partner would have to essentially purchase shares from the old partner, and a new operating agreement would have to be created. It would probably be simplest to create an LLC partnerships for each investor/partner you have. Hopefully they will continue to invest with you, and then that partnership could continue to grow.

That would mean you would have to create and maintain multiple LLCs, which takes organization, but is doable.

One consideration with that method (and check with an attorney) is I believe that each partner in the LLC has to have a function, and they can not be completely passive. It can be as simple as maintaining the books, but it has to be something.

One way you may be able to do this within one LLC is to setup each deal as a loan, rather than an equity partnership. And each “investor” will loan the money with a set return, and could record a lien on the specific property.

Good luck and I look forward to seeing how you structure your business!

Cory Carlson · Answer

Are you a real estate broker or contractor?

Daniel Kent · Answer

@Marco Cruz good thought! Do some research on series LLCs. Might be an option as well-

Marco Cruz · Answer

Thank you Daniel, the loan route is one i have been considering and doing research on. If I do not find a better way i will go that route. Another way I was thinking is having my Parent LLC, where I am 100% owner, be a member of the other LLCs i would create with new deals and or investors. The only drawback I have found in this method is I may loose the Liability protection on my Parent LLC if one of the other LLCs has a problem since it would be listed as a Member.

Cory Carlson · Answer

I would get your brokers license, hang it wherever and sign a buyers broker and cooperating agreement for the deal in particular with your partners. Have it outline the roles, recourse, disposition, and legal stuff. Don’t need to over complicate things.

Marco Cruz · Answer

I used to be a realtor, and had a construction business for about 2 years. I have a new career now but recently started Investing in Real estate due to my past experiences and flexibility in current job. I will be reinstating my Realtor license by next week.

How do I structure my LLC if I planned on acquiring Investors

How do I structure my LLC if I planned on acquiring Investors

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