For a little background on where I am in my REI career, I'm closing on house #2 in a week and will be turning house #1 into a rental soon thereafter. I plan to repeat that with #2.

As I look forward to building momentum, I am looking at partnerships for rentals. Once you find that partner and agree on a property, (basic question alert!) how do you proceed? Do you put both names on the mortgage? Should an LLC be formed and you work together under it?

Such good questions! A partnership can be the best growth strategy, or it can be the worst equivalent of working for a terrible boss, except the terrible boss will be yourself.

Try not to think of it in terms of should, and think about it intuitively. If you are committing to a marriage, you have two choices: let the state govern a future divorce, or determine the outcome of a future divorce yourself. Like marriages, all business relationships end, either in death or a parting of ways.

If you begin with the end in mind, you'll do excellently.

(As an aside, the LLC protects your personal assets from a potential lawsuit and can provide tax advantages, but if you don't have much to lose, ask yourself what it's protecting. Don't let an LLC hold you back.) Best of luck going forward!

My lawyer told me that in a partnership, an LLC should be set up to protect yourself. But I'm wondering if you can get a loan as the LLC? Or do you have to buy under all names, then transfer to an LLC?

@Sarah Wood

No, don't persoanlly purchase then transfer LLC. You can do it, but in my layman's opinion it messes with your corporate veil. I've been posting on this a lot recently

As for the loan, LLC's can get loans. You just need to find a commercial lender. Residential lenders, which jus the vast majority, will say to purchase with personal names so that they can sell you a loan.

Most commercial lenders will requires the LLC Members to guarantee or co-sign the loan. Just be ready for that.

@Richard Ferrero

When you are investing with a non-spousal partner, you pretty much need a legal entity of some sort. This is pretty much the only time that an entity has any sort of tax benefits. The deductions you can take are all the same. However, the entity allows the profits/losses to be apportioned to you according to your agreement.

The agreement that establishes your entity will spell out lots of things, including what happens when things go well and when they don’t go well. It’s a business. It’s important that you have these things agreed on ahead of time.

Just remember that legal entities are not eligible for conforming residential loans. You’ll have to get commercial financing. Consult some qualified professionals. Don’t let a residential lender convince you to purchase a property personally just so (s)he can sell you a loan.

Good luck.

@David M. Thank you. That makes sense.