Strategy with cash investors via OPM (other people's money)
Hi all, I am getting to a point where I would like to start scaling my portfolio but cash reserves of course come into play. I have a few people in my network that would like to contribute cash for a % equity of the return on a flip/rental. My question is, how does one go about setting this relationship up?
- Do I have to add them to my existing partnership/llc?
- (The big one) Come tax time, how does this get recorded?
Simple example, my brother wants to go in on a property that my partnership (3 individuals) is going to purchase. We would probably have some equity split based on cash contributions from each person and some additional sweat equity baked in. But would my brother just wire me the money and I keep the contributions through the partnership? How is this documented for when payouts from rental income comes in? Of course I could just manage the money and send him the appropriate amount but what about when tax time comes and he needs to report his additional money that he has coming in?
Any insight on what y'all have done would be amazing. Thanks!