20 new duplex units. father/son partners. Son needs advice
I need advice about protecting my investment. I've been working on a project for about 12 months, and I'm stuck now. I'm looking for unbiased opinions about how ownership of the LLC should be structured.
I have to tell a bit of a story, so that I can accurately describe how I've arrived where I am now. Here we go.
40 years ago, my mother's parents bought several plots of land & my grand father used it for his business. They also purchased other plots in the same general area with houses on them & rented them out for years. Grandma had a stroke & my parents took over running the business in 2005. Fast forward to 3 years ago
My mother got an aggressive form of cancer & we lost her within the year.
Now it's just dad 57, me 27, and my younger sister 21. The first year without her was rough and we all dealt with it in different ways. I threw myself at work, my sister got help from a counselor, and my dad took up a new habit of trying to find companionship that he lost with my mother.
We have been adjusting to our family life being different now, and it is often challenging. My dad is a different person now.
He was always hard working & very humble. He was a workaholic. Many things have changed. He acts like he can't be forced to do things that he doesn't want to do. Even if it relates to work. He sold his office building this year. Spent 25 years there and had a successful business. Work the bare minimum he has to, dad is burnt out.He wants to play now. That's where our issues began.
The Rental unit are houses older than 1950 and nightmares to maintenance. So I starting working on an idea to build new units & not spend a fortune. I have developed a 900 sqft 2 bed 1 bath unit & a 1050 sqft 3 bed 2 bath unit. Both duplex style. I developed the cost estimate for these buildings. As well as the electrical & HVAC plans. Truss plans are included from framing contractor. All of the finishes are picked out & costs associated with them. The excavation & utility costs were bid. I have engineered drawings completed so I can get the property rezoned and get my plan approved. The city has welcomed the project and they seem to be on board. Haven't hit any brick walls yet.
Here is where I need help from you guys. This land is in an irrevocable trust. My dad keeps using the term business partners, but wants majority control of the LLC. I am really struggling with that. I've asked for 50/50. My dad cannot secure this loan himself. He is very crippled by debt to income right now. My wife & I have to be on the loan to get it approved.
We are also contributing almost 100k cash from flip house projects for the down payment. I've told my dad to try to leverage his paid off rental units towards this instead of selling units, utilizing 1031 or paying capital gains. So he can keep his current monthly income.
The down payment needed is 275k. At full capacity this business will generate $15,100 monthly gross. Should net 10k a month after mortgage & maintenance funds set aside. These units will be in the HUD program, so 80% payment is guaranteed for 12 month terms.
He is trying telling me that I have to earn 50/50 ownership over time. Wants me to start with 35%. I am very stuck. One part of me screams stop wasting your time on this and start off smaller on your own. The other part wants to do whatever it takes to get this deal completed. Because at 27 $5000 residual income is a fantastic starting point.
I am a licensed contractor and will be building these units out myself. Subcontracting only what I have to. I'm young, so on this development I'm willing to do everything I can do. My wife will do the books & I will handle all the primary interactions with tenants. My dad wants a relaxed role in the business and these are terms we've all agreed on.
I think my planning, execution & sweat equity in building the units and managing the business is more than enough to justify a 50/50 split.
My goal is to retire my dad and build residual income for myself. I want to be fair to everyone involved, but I have to protect myself. Family business is complicated and I'm hoping for some feedback from this community.
Thanks!
Trevor