Ive reached out to a few real estate attorney, still awaiting a response. So I wanted to run it by some pro investors on BP.
I am purchasing a property through a JV. My LLC will be the active manager, my partner will supply the funds via his self directed solo 401k.
Should I seek out a security attorney? Estimated cost?
Will we need to form a trust which my LLC and his 401k both have equitable interest?
Do we need to open a new bank account for this trust, or will my business checking account work?
I’ve done private lending and understand that dance and I’ve attended a syndication seminar but seems overkill for a SFH- flip.
What’s the cleanest, cheapest and best way to do this?
Basically just splitting profits 50:50
No entity is required. Your LLC and his Solo 401(k) can simply vest title jointly as tenants-in-common. Both entities provide a level of separation and asset protection for each of you, and an entity would require a tax return. You should probably work with a real estate attorney to draft some kind of joint venture contract to protect your respective interests and keep things on the straight and narrow. This can be especially beneficial if one partner has outside issues that impact their position such as bankruptcy, death, divorce, etc.
Keep in mind, flipping is a trade or business. If his SoloK is receiving equity participation in the profits, and doing such types of transactions on a regular or repeated basis, then UBIT taxation will apply. He may be better off simply being a lender and receiving passive interest.
@Logan Turner I can't speak to the entity setup per se but when I bought my first apartment deal with one partner we set up a special purpose LLC and an operating agreement. The cost was nominal.
Personally I don't like the Tenant In Common set up because all TIC's must unanimously approve major decisions. IMHO there should only be one chef in the kitchen!
If you go the TIC route, you will need a Tenant-In-Common agreement that describes how decisions will be made. And yes, it will require unanimous consent on major decisions, but with only 2 of you, won't you want that anyway? The TIC Agreement can have a buyout clause that allows either of you to buy out a dissenting partner.
To learn more about UBIT, see the following.
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