Details Sorounding Parnership

3 Replies

For folks doing rehab projects with partners, I'd be interested in hearing how you handle some of these aspects:

1) At what point do you legally form the partnership? Before making offers? (ideally i'd like to be able to place properties under contract, and THEN handle the partnership setup ...just not sure if that's the best route)

2) What entity setup do you use? (llc, or something else?)

3) I assume you create a separate bank account to match the LLC?

I've always done deals solo, but getting to the point where I'd like to bring a partner in for some of the projects I'm doing, and just need some pointers on doing this is the most efficient way!!

Hi Thomas,

My 2 cents: I'd plan on drafting out the specifics of a partnership ahead of time. This should include who does what, how much capital each of you will contribute, what the profit split will be, will either of you earn fees for managing the project, etc.  

The biggest thing you want to agree upon is who has final say over major decisions. This helps avoid a project coming to a complete stop when you can't agree. You can split major decisions into buckets. For example, one of you may make all design decisions. While another of you will make financial or marketing decisions. Play to your strengths so this is more natural. 

You can then memorialize it all in the operating agreement once you have a deal to work on. 

Certainly agree to use a competent attorney to help you draft everything. 

You should also plan for what happens if/when you want to dissolve the partnership. Stuff happens (job changes, family members pass, etc.) that changes things and you want a clean way to break things off. 

LLC or S-Corp are best. Some states don't recognize one or the other...your attorney can advise on that.

Definitely want a separate bank account. Keep the funds separate from your personal funds. If you buy something with personal funds record a loan payable on the company records so you get paid back. This avoids the "well I paid for 3 extra cans of paint" and the "yea, but I paid for the fill-in-the-blank". Someone or both of you will feel like you've picked up more...just keep it all recorded so it balances out at the end. 

Hope this helps!

Matt

Originally posted by @Thomas Fortune :

For folks doing rehab projects with partners, I'd be interested in hearing how you handle some of these aspects:

1) At what point do you legally form the partnership? Before making offers? (ideally i'd like to be able to place properties under contract, and THEN handle the partnership setup ...just not sure if that's the best route)

2) What entity setup do you use? (llc, or something else?)

3) I assume you create a separate bank account to match the LLC?

I've always done deals solo, but getting to the point where I'd like to bring a partner in for some of the projects I'm doing, and just need some pointers on doing this is the most efficient way!!

 Answer:

1)  From the beginning

2) LLC

3)  Yes

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