Setting up LLC agreement with partner
Hello Bigger Pockets folks,
I just purchased a first building with my partner (we are together but not married) via an LLC in which we are joint members. Currently writing up our joint operating agreement to spell everything out to define roles and protect ourselves. Some details:
- I put in the vast majority of the down payment. The loan is a private family loan to the LLC, guaranteed by my assets (not my partner's).
- My partner is a carpenter and is the one doing all the physical work to the unit (I help when reasonable, but am extremely unskilled). We're not doing any major improvements to the building yet as we've been able to raise rents without doing so, but do forsee doing this work, and he would be the one doing it.
- We also foresee buying additional properties with additional LLCs. In fact, we just put an offer on another one this week.
- We are really not interested in nitpick logging all of our work hours and "billing back" to the LLC. That said, he is doing a lot more work than me currently (I do finances and most tenant communications, but he helps with those too).
I am thinking of re-categorizing my down payment money as a loan to the LLC with the stipulation that it gets paid out at a certain minimum rate before LLC member equity is paid out, but also rises to the overall investment payout rate at the time of liquidation if that rate is higher than the loan's minimum rate. I'm thinking of doing this as a way to keep 50/50 membership of the LLC.
1) What do folks think of this internal LLC loan idea;
2) What advice or thoughts to folks have about what to include in the operating agreement to keep things fair and clean without nitpicking or billing back hours; and
3) Any other advice for investing with a partner while also setting yourself up for success and protection for both members is welcome.
Thank you!