How would you set up this partnership?

Question

I am under contract on my first 4 plex. I am set to close on August 1. I have a long term significant other that I would really like to be involved with the business. I want him to have some financial gain as he has a lot of skills that will help with my success. This is what we both will bring to the table.

Me: I found the property, I am funding the loan and most likely any initial set up costs. The building is fairly turnkey but will need some minor upgrades. I am furnishing 1 unit to begin with. I will also be doing the majority of the managing.

Him: He is much more organized than I am. He is great with computers and spreadsheets. Very handy when it comes to fixing things. I think he will really be essential to making sure the business side is operating smoothly and that this will ultimately be a success.

I originally planned on doing this “on my own”. However, I do know that my biggest chance for success will be if he is involved. He is a “higher” earner. So, I don’t want to just higher him. Ideally, I would like him to also get tax benefits. I was just going to start an LLC with my name only. Do I put him on the title with smaller shares? Do I add him as a partner on the LLC? I have tried researching this but I am falling short on finding answers.

Account Closed · Answer

Some options:

Add him as a partner in the LLC - instead of holding the LLC 100% yourself, you could form it with him as a co-member. You can split ownership however you want (doesn’t have to be 50/50). Maybe something like 70/30 or 80/20 depending on how much capital/work each of you brings. This way, he shares in profits, losses, and tax benefits.

You don’t have to put him on the mortgage or title. As long as the LLC owns the property and he’s a member, he’ll get K-1 income and tax benefits from his share. This also keeps things cleaner with your lender.

Have a written operating agreement - regardless of how you split things, get something in writing. It helps avoid misunderstandings down the road and clarifies roles, responsibilities, and exit plans, especially since you're mixing business and personal.

Since this is a long-term relationship and you’re talking ownership, I'd recommend sitting down with a real estate attorney or CPA who works with partnerships. They can help you set this up right from day one.

Scott Mac · Answer

You should talk to him about this first and see if he's on board with the idea.

Good Luck!

Ashish Acharya · Answer

@Brenda Reems You’re thinking smart by wanting to involve your partner not as an employee but as a true stakeholder, especially since he brings operational value and you’re contributing capital and deal structure. Here’s how to move forward in a way that benefits both of you financially and from a tax perspective:

• Form an LLC and list both of you as members. The property should be titled under the LLC. You don’t need to split it 50/50 ownership can be based on capital contribution vs. operational input (e.g., 70/30 or 60/40). LLCs allow flexibility in allocating profits, losses, and decision-making.
• Tax Benefits: As a partner/member in the LLC, your significant other will share in the tax benefits like depreciation, cost segregation allocations, and business deductions. This is much better than hiring him and issuing a W-2, which would remove access to real estate tax advantages.
• Avoid Employee Setup: By making him a co-owner instead of a hired worker, you skip payroll tax issues and instead allow him to benefit from pass-through taxation—income and losses from the LLC go directly onto your joint or separate tax returns, depending on how you file.
• Operating Agreement: Create a clear operating agreement. It should outline: Capital contributions and responsibilitiesProfit/loss and tax benefit allocationsDecision-making authorityWhat happens if one partner wants out
• Capital contributions and responsibilities
• Profit/loss and tax benefit allocations
• Decision-making authority
• What happens if one partner wants out

• Capital contributions and responsibilities
• Profit/loss and tax benefit allocations
• Decision-making authority
• What happens if one partner wants out

If you’d like, we can provide you with an LLC Operating Agreement template customized for real estate partnerships, so you don’t have to start from scratch.

Setting this up the right way builds a solid foundation for future scaling, protects your personal relationship, and ensures the IRS recognizes both of you as active business participants with tax benefits to match. Let me know if you want help drafting your LLC docs or structuring depreciation strategy.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Brenda Reems · Answer

Account Closed Thank you very much for your response. This is what I was thinking I should do. But, I just wanted to make sure there wasn’t something I didn’t think about.

Brenda Reems · Answer

@Basit Siddiqi I don’t NEED to add him as a partner. However, if he will be doing work for the property, I feel he should have some stake in it. I also plan to expand the portfolio if everything goes well. If that happens then he will most likely continue to be involved. We are both higher income earners so we have more opportunities to expand than others. Eventually he will have more opportunity to make financial contributions. But, just for the temporary future, he is not able to do some other circumstances. I could be wrong but it might be easier to add him from the beginning verses trying to add him later. I know some people will set up new LLCs for each property but I don’t know how that works when you want to use the cash flow as income for future commercial loans. I know that usually you need to have 2 years worth to be able to claim the cash flow as income. But, I don’t know how that works if you have numerous LLCs.

Basit Siddiqi · Answer

If he is a signifant other, do you need something on paper for him to benefit?

Wouldn't you both share both your wealth together?

If he is a high income earner, he likely won't benefit from a tax perspective as the losses will be deemed passive.
Furthermore, you may be adding complexities(splitting of income, filing a partnership tax return, hiring an attorney, LLC Fees) which may just eat up the money you wanted to share with him.

Brenda Reems · Answer

@Ashish Acharya thank you for your response. It is greatly appreciated.

How would you set up this partnership?

How would you set up this partnership?

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