Partnership with Friends.. Any Advice Will Help!

[Geum Chan Hwang]

Hello BiggerPockets community!

My friends and I are planning on a real estate venture and we would like some advice and, or insight on setting up our partnership. We are aware that it is highly recommended not to partner with friends and that it can potentially ruin friendships down the line. However, we already thoroughly discussed this topic and are ready to move forward with our plan.

Now the major issue that we are dealing with is how we plan on setting up the partnership structure. We've already discarded the LLC option after finding out the difficulties of getting a loan so our only choice seems to be the TIC option. We started creating our Partnership Agreement (for example; the penalties for selling the property within the first couple of years), but as we continued to structure our agreements, we began to question the legality of certain agreements we created. So our main question is, to what extent does our agreement hold up if we were to end up in court? Going back to the previous example, we decided it would only be fair that we penalize any partners who wants to leave the partnership early within the first crucial years. If a partner wanted to sell his share in the first year (we also made an agreement so partners can only sell to other partners), he would get the adjusted value of his deposit with a 75% cut + additional profits(if any) we made. If his initial deposit was $1,000, he would only be returned $250 + profits assuming value of house hasn't changed. Will agreements like this be acceptable by law? Or are there already laws that are set in place that will prevent us from creating our own agreement?

Any insights or advice will help. Thank you!

-Andy 

[Thomas S.]

You must have a lawyer draw up the partnership agreement. If you do not the risks of your 'back of a napkin" partnership agreement will likely not hold up in court.

If this is a serious partnership use a lawyer.