What are the benefits of being managing member on MF deal?

[Cliff T.]

Hi all,

My investment partner and I are in the process of closing on a 20-unit property and we're going through LLC entity formation & loan application with Fannie/Freddie. My investment partner is putting in most of the equity and I'll have ownership of ~20%. To be a managing member, I'll need to submit a bunch of paperwork (e.g. real estate schedule, bank statements) and have my credit pulled.

What are some of the benefits of being a managing member (with a small equity stake)? Should I even proceed with being a managing member?

To be clear, if I do not proceed as being a managing member, I would still have 20% voting rights for any major decisions that need to be made.

[Greg Scott]

I am not an attorney but this is my experience.

As a managing member, theoretically you can help with decision making.  However at 20% ownership, you can be overruled by your partner pretty much time there is a disagreement.  But, you could make decisions on behalf of the entity.

If your plan is to have your partner make 100% of the operating decisions, then effectively you are a passive partner.  As a passive investor, you have no influence over day to day activities and you are investing in a security. Your partner should have created a PPM if he is the sole decision maker.

So, do you want to be involved in the deal on a daily basis or do you want the protection a PPM offers its investors?