How do I structure a partnership?

4 Replies

Hello all, I have a basic question about partnerships. I have grown my knowledge on real estate enough to the point that I feel ready to make a deal. However, I have no money. My friend has no knowledge in real estate but loves and trusts what I’m trying to make happen. He has enough for a 25% down payment on a lot of properties that we are looking at. We are just completely unsure how to structure a deal where we both benefit. He doesn’t have enough to purchase the property outright, only enough for a 25% down payment. How can we combine forces and use my knowledge with his cash??
Originally posted by @Michael Faudoa :
Hello all, I have a basic question about partnerships. I have grown my knowledge on real estate enough to the point that I feel ready to make a deal. However, I have no money. My friend has no knowledge in real estate but loves and trusts what I’m trying to make happen. He has enough for a 25% down payment on a lot of properties that we are looking at. We are just completely unsure how to structure a deal where we both benefit. He doesn’t have enough to purchase the property outright, only enough for a 25% down payment. How can we combine forces and use my knowledge with his cash??

 You might want to consider forming a Joint Venture instead of a partnership. It will be far easier to invest and do taxes and handle future decisions. One of you provides the Capital and the other can provide the knowledge and management. If he has enough for 25% down on houses in California, he certainly has enough to spend an hour with a real estate attorney and have the attorney draw up the proper papers. Don't go cheap on the paperwork, it's too big of an investment to get it wrong. 

@Michael Faudoa

If you invest sweat equity in a partnership, the accounting for it can get pretty complex. It's possible, but significantly more complex. You will want to have a good attorney draft the documents and an accountant who knows what he/she is doing as well. A joint venture is essentially treated as a general partnership. This means both of you will have unlimited liability. If that doesn't concern you then you can do a general partnership and save the $800 minimum tax in California. If you want to limit your liability, then you will need to create a limited partnership or an LLC or S-corp, all of which will be subject to a minimum tax in California of $800. If you create a limited partnership, you need to have at least 1 general partner, who will have unlimited liability. You also could maybe treat his money as a loan to you if you want.

*This post does not constitute legal advice and is not to be relied upon.  Readers are advised to seek professional advice.  This post does not create an attorney-client nor a CPA-client relationship.

Hello all, As you know every investor and developer is looking for the same answer and to solve all these you need to interact with the same business owners and workers, who are into the same business. The main thing to focus in the real estate business is the trust and the deals. As you know There is no business which can be run without the trust. So make trust in your partners and the business owners. That will always helps you. As I am working with the American Real estate owner Elie Hirschfeld. He's that person who helped me in every good and bad situation. 

@Michael Faudoa This can be as complicated or as simple as you want to make it. I would suggest that you tell your partner/joint venturer that you will do one deal/joint venture together and then evaluate the future of the partnership/joint venture. If you want to continue with that partner, you can set up an LLC or limited partnership. However, always protect yourself with sufficient insurance coverage and good contracts if you're operating as a general partnership/joint venture.

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