Partnership through LLC

General Real Estate Investing
8yFollow

Partnership through LLC

Marlon C. Belfon
Philadelphia, PA · Member since 2017 · 3 posts · 0 votes

I am considering creating an investment group with possibly 8 to 10 members for the purpose of real estate investing. Had a few questions if anyone can help me. First, is it beneficial to create an LLC with the 8-10 members and purchase properties through the LLC? Second, how would the titling of the properties be, would it be assigned to the entity that is formed? Lastly, what are some of the tax ramifications if anyone experienced creating an investment group? If there is an approach that is more effective, please advise.

0Reply
8 views

Most Popular Reply

Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
8y

@Eric Telese

I normally go the investing route without the LLC. I choose to use an umbrella insurance coverage.

however, I think it is important to create an entity structure when you invest with others; in your case one partner.

Many people will argue the LLC is a better alternative to a general partnership, limited partnership, and LLP when investing in real estate. Ultimately, you should check in with your attorney/cpa for guidance based on your specific case.

There are costs(disadvantage?) associated with having an LLC.
1) Formation costs
2) annual fees for upkeep
3) possible additional fees to accountant
4) possible fees to registered agent(if required)
etc

[email protected]917-280-8544
Basit Siddiqi CPA4.979 Reviews
View Page
3Reply
See this reply in the discussion

5 Replies

Jump to latestLatest
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    8y

    @Marlon C. Belfon

    The other members of the investment group would likely prefer to invest through an LLC instead of owning the properties in each investors name.
    The reason is that their liability will likely be limited to their invested capital if something were to go wrong.

    To get the liability protection - you will want the title of the property deeded to the LLC.

    The partnership will file form 1065 and form PA-65 where it will report the rental activities you plan to get involved in.

    The partnership will then distribute a K-1 to each investor where they will ultimately report the information on their individual tax return.

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
    View Page
    1Reply
  • Eric Telese
    Rental Property Investor · Glen Cove, NY · Member since 2016 · 109 posts · 25 votes
    8y

    @Basit Siddiqi 

    Is the LLC approach the best way to go about purchasing a rental proerty with one partner? Is there any disadvantage to using this method?

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    8y

    @Eric Telese

    I normally go the investing route without the LLC. I choose to use an umbrella insurance coverage.

    however, I think it is important to create an entity structure when you invest with others; in your case one partner.

    Many people will argue the LLC is a better alternative to a general partnership, limited partnership, and LLP when investing in real estate. Ultimately, you should check in with your attorney/cpa for guidance based on your specific case.

    There are costs(disadvantage?) associated with having an LLC.
    1) Formation costs
    2) annual fees for upkeep
    3) possible additional fees to accountant
    4) possible fees to registered agent(if required)
    etc

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
    View Page
    3Reply
  • Marlon C. Belfon
    OP
    Philadelphia, PA · Member since 2017 · 3 posts · 0 votes
    8y

    Thanks for the positive feedback @Basit Siddiqi , very helpful

    0Reply
  • Troy Sheets
    Developer · Philadelphia, PA · Member since 2013 · 1k+ posts · 902 votes
    8y

    How we generally do it in a case like this is each partner has their own LLC, so maybe yours would be MCB LLC. The property is bought in another LLC and then each partners LLC owns a percentage of the property LLC. Let's say 10 partners and it's equal so each partner's LLC owns 10% of the property LLC. MCB LLC owns 10% of 123 Main St LLC, your buddy Bob owns Bob's LLC and it owns 10% of 123 Main St LLC and so on. Hopefully that makes sense.

    Each partner can sell their LLC or even just a percentage of their LLC to anyone else to get profit out, raise capital or exit the deal (depending on how the operating agreement is written). You can reuse MCB LLC for multiple deals, only needing new LLC's for each property. You can put multiple properties under one property LLC but it defeats the purpose of protecting the assets by not separating them.

    I'm sure there are many other ways to do this but this is what we've done and it has held up well. I can refer you to a good lawyer to draft the docs (a solid operating agreement is essential, it'll spell out lots of things like who makes decisions, who can sell equity, etc.), don't try this yourself! Once you have the docs, it's mostly rinse and repeat and fill in blanks unless there are differences in the next deal. It's not cheap to set up properly but it's well worth the initial investment. Just don't get too happy with the calls and emails to your lawyer, they'll chat with you all day long and they're billing for every minute of it. 

    2Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free