Investor · Derry, NH · Member since 2016 · 15 posts · 5 votes
Good Afternoon BiggerPockets Members,
I'm in a bit of a stall right now. Over the past two years I've been saving up money to start investing in real estate and I've been educating myself by reading books, analyzing deals, and reading the forums on BiggerPockets. Through the process I've met plenty of people including potential partners. There are currently two investors that are interested in partnering with me, so as long as I bring them a good deal. To be honest, I'm not exactly sure what to do when it comes to the legality or steps of creating an account, LLC, etc. If I partner with these two investors then I will have enough capital to offer on great properties in my area without using up all of my own savings.
I would really appreciate some direction or guidelines on what to do once investors have agreed to partner with me.
If your going to form a LLC for LP (limited partnership) with partners, and it's your first time around, hire an attorney to write everything up and form the LLC for you. Once you have the LLC and EIN, you can go open up bank accounts.
There is a few ways to go about it. If you have the partners, you could just create the LLC out the gate with all members defined and monies deposited, or you could set it up so it's only yourself, then have them "buy in" to owning interest in the LLC at a later date.
If you are able to get funding before finding a deal, people who do this, setup everything and hold the funds in a interest bearing account while they hunt for deals, but the terms have a drop dead date that the money is returned if a deal is not found by some date in the future.
What I would do is find a deal, get it under a LOI or contract with an assignment right, then present it to your partners. If everyone likes it, then you kick off the LLC, funding, and go to closing all in one go. This way your not spending any money without anything worth spending it on. Just make sure your LOI or contract gives you a right to exit if you don't get the partners interested. Likely a 30 day DD period in the contract that lets you exit without penalty for any reason would do.
If your going to form a LLC for LP (limited partnership) with partners, and it's your first time around, hire an attorney to write everything up and form the LLC for you. Once you have the LLC and EIN, you can go open up bank accounts.
There is a few ways to go about it. If you have the partners, you could just create the LLC out the gate with all members defined and monies deposited, or you could set it up so it's only yourself, then have them "buy in" to owning interest in the LLC at a later date.
If you are able to get funding before finding a deal, people who do this, setup everything and hold the funds in a interest bearing account while they hunt for deals, but the terms have a drop dead date that the money is returned if a deal is not found by some date in the future.
What I would do is find a deal, get it under a LOI or contract with an assignment right, then present it to your partners. If everyone likes it, then you kick off the LLC, funding, and go to closing all in one go. This way your not spending any money without anything worth spending it on. Just make sure your LOI or contract gives you a right to exit if you don't get the partners interested. Likely a 30 day DD period in the contract that lets you exit without penalty for any reason would do.
For the LLC go to sunbiz.org you can register an LLC there. I don't remember exactly how much it costs but it's under $200.
For your partner(s) come up with an operating agreement spelling out each of your responsibilities and how much money they're putting up so it doesn't become an issue later.
I would think to keep 2 separate LLC's for each parter, unless they are both cool with combining forces. I imagine they'd want to meet, but maybe not.
Hi @Ivan Rubio, if you plan on being a "team" so to speak and joint venturing on a number of properties, you would want to set up an LLC with each of you being a member. There's a small fee in most states, I believe $125 in FL as of now. An attorney can form it for you and prepare a good operating agreement to set forth the responsibilities of each member as to day-to-day management, financing, etc. Who has the authority to sign documents, to negotiate contracts and loan terms if you need 3rd party financing, who manages and oversees the construction project if you are rehabbing, who reviews and chooses to accept offers, and then of course who owns what percentage of interest and how the money is split up when it comes in.
If you are looking to do a single deal, I would have a good understanding with your potential partners as to what your budget is for acquisition and reno costs, and like @Levi T. said, find the deal first, and then set forth specific terms pertaining to that transaction in an operating agreement.
Lots to consider, but happy to chat further if you want to message me. Best of luck!
1. Find the deal and present to partners. 2. Create the LLC and operating agreement (with an attorney). 3. Get the funding into an LLC bank account. 4. Close.
The goal is to invest in multi-family properties within the area. How do commercial loans work then? How do loans for an LLC work then? I know how they work when it's under my name but I'm a little confused how it works with an LLC. I've tried looking for an article on BiggerPockets about it but I can't find one.
@Levi T. Thank you so much! Wow, that was actually pretty clear. @Jessica Zolotorofe Thank you! It looks like the steps are:
1. Find the deal and present to partners. 2. Create the LLC and operating agreement (with an attorney). 3. Get the funding into an LLC bank account. 4. Close.
The goal is to invest in multi-family properties within the area. How do commercial loans work then? How do loans for an LLC work then? I know how they work when it's under my name but I'm a little confused how it works with an LLC. I've tried looking for an article on BiggerPockets about it but I can't find one.
Use a local bank for lending, ask for their commercial devision, I would start building a relationship on that today. You will get a loan in the LLC, you and your partners would likely guarantee the loan. It's unlimited, so they can clean house if you default. Most commercial lenders will require anyone who owns more than 10% of an LLC to guarantee the loan. Ask some of the local businesses who does the best commercial lending. You will start noticing everyone uses the same bank after a while, go build a relationship with their top lender, then find out what they require from you.
@Ivan Rubio, completely depends on the project, how much equity you have in (most commercial loans require 15-20% minimum), your individual net worths and who will guaranty the loan. Otherwise, it's pretty similar as far as the process to any other loan. You would work with a broker or shop around a few lenders. See if they are interested in the deal and get term sheets to compare, sign a commitment, send in a deposit and any other documents they require, corporate resolutions and formation documents, operating agreement, etc. and when you fulfill their checklist items, you get your money :)
@Levi T.@Nick C.@Jessica Zolotorofe all three of you might not remember this from 4 years ago but I've purchased multiple rental properties using the knowledge from this small conversation.