First Question on LLC Formation

[Ryan Tagliamonte]

Hi all! Posting for my first time on this platform and I'm excited to hear from/interact with whomever may read and respond. I'm writing because I feel I'm at a bit of an impasse as to what exactly to do when attempting to file for an LLC. I think a bit of background may help to make the question make more sense. I'm currently a graduate student sheckled in debt with a few dollars and a dream to begin investing in real estate. A close friend of mine shares similar interest and ambition (arguably stronger than mine at the moment), and we've been interested in forming a partnership to begin this business venture together. I've done some research, spoken with a family member of mine who has been in the field for the last 20 some odd years, and talked to a few friends of mine who are in law school as to how I should go about filing for an LLC for our business. Now, the reason why I feel my situation might be a bit unique is because of the capital disparity between myself and my potential business partner. He is someone who will be providing most of the money upfront as we begin to either buy and flip or buy and rent out properties as I work to cut down on a large amount of my debt. I know that it is important for liability purposes to file for an LLC potentially before we even buy our first property, and I think it can help to establish in writing how we'll split profits, but I a) know that the percentage in which we will be contributing funds will change overtime and b) am a bit apprehensive about the initial costs and if it would cost us any additional amount to have this LLC filed without immediately adding properties. We're in our infancy in terms of trying to find deals, and, while I think we're ready to take the first leap and buy the property, it's difficult to know exactly what my percentage will be initially because I'm so restricted on what I can offer initially. For example, we may have a lead on a quadplex in a suburban county by where I live, and if we decide to make an offer on this property first, the amount that I can contribute will be almost nonexistant (likely less than something like 5%). However, if we decide to buy a fixer upper type property in the city, I can actually contribute a pretty marginal amount of capital and my percentage in the company would initally be higher (can likely help around 10-20% if under 50K and of course depending on down payment/what anticipate rehab costs would be). I've been really confused how to move forward with this and am hoping that someone may be of help! Hopefully this makes sense, and happy to clarify further if it would be of help.

[Cal Dunagan]

@Ryan Taglimonte
This is a really important question and I'm glad you posed it before moving forward. I hope I'm not too late getting to you. A partnership is an extremely complicated endeavor and you absolutely need an attorney to help with this. This is a really good primer on how to use partnerships in real estate investing, but there's only so much research you can do. You might set up a partnership agreement and leave out key terms to properly protect both you and your partner. I had a partnership LLC without a partnership agreement and I could have been royally screwed if my partner or I messed up with our clients. We were lucky. I'm in law school right now, in business taxation. We are on partnership agreements and the template we're using is 100 pages long! You really need to work with a professional on this one, in my humble opinion.

Best of luck!