what are the logistics around setting up a partnership?

Question

Hi, I’ve come across a property that I think would be a great investment, but I would need to find partners in order to make it work.  It got me wondering about the logistics around establishing a partnership, specifically the sequence of events.  Do people identify partners, set up an LLC (which could take weeks), find a property and then create the operating agreement to determine ownership?  This approach seems like there could be missed opportunities as the partners wait for the LLC to be created.  Or do people find a property, identify partners and then make an offer?  This approach though seems to leave very little time to get the partnership set up since there’s a small window of time between finding a property and making an offer on it.  Please shed some light on the process.  Thanks.

Assaf Furman · Answer

@Michele Ling You can stipulate it in the agreement according to what you've both agreed on and answers our investment goals. For example:

"The property will be sold in the following circumstances:

1. When it has gained X amount of equity

2. When it has been vacant for X amount of time

3. When both parties agree to sell the property...."

There are ways you can structure the agreement such that only one party can exit, for example by selling his share to the other partner (or someone else for that matter), refi on the name of the other party and cash out his share of the equity.

Have a look at the BP fileplace you'll find there partnership agreements.

Michele Ling · Answer

@Assaf Furman

Thank you for your feedback. You confirmed what I was thinking.  I wonder though, what happens if it's a buy-and-hold property?  How would you structure the agreement to reflect how long to hold the property and when to exit?

Assaf Furman · Answer

@Michele Ling

Real estate revolves around people rather than properties. IMO you should first identify a trustworthy person you want to partner with, set up an agreement that reflects your expectations from the partnership, the strategy you would like to implement and the financials (expenses and revenue). That will help you understand if you need an entity and what type would be most appropriate, as well as understand what kind of properties (or deals) to look for.