1st potential partnership - basics

3 Replies

Hi All -

My wife and I have purchased, rehabbed and rented out 4 duplexes in the past but did so as either owner-occupied or by funding the deposit ourselves. 

As we are looking to expand our real estate business, I have obviously been reading and listening to a lot on bigger pockets about partnerships and other people’s money.  I have come across a deal in our area for a 4-plex that I have presented to a potential partner who has money and is interested.  We currently do not have any liquid assets to provide, but I would be handling all of the day to day management, rehabbing, renting, maintenance etc. 

From reading other posts, it seems a typically starting point for negotiating would be a 50/50 split of profits. I’m assuming most people creatively negotiate all other terms as well. however I do have other questions.... 

How do we structure the partnership? A new LLC? Just a JV agreement? Do we get a mortgage in both names? A title in both names?

I would think we need to talk with a lawyer regarding a lot of this but I’m just trying to get a basic idea of what is common so I can talk to him more intelligently about our options. 

Any help or insight is greatly appreciate. Thanks to the community for all the help thus far!

Jason

Originally posted by @Jason Schatz :

Hi All -

My wife and I have purchased, rehabbed and rented out 4 duplexes in the past but did so as either owner-occupied or by funding the deposit ourselves. 

As we are looking to expand our real estate business, I have obviously been reading and listening to a lot on bigger pockets about partnerships and other people’s money.  I have come across a deal in our area for a 4-plex that I have presented to a potential partner who has money and is interested.  We currently do not have any liquid assets to provide, but I would be handling all of the day to day management, rehabbing, renting, maintenance etc. 

From reading other posts, it seems a typically starting point for negotiating would be a 50/50 split of profits. I’m assuming most people creatively negotiate all other terms as well. however I do have other questions.... 

How do we structure the partnership? A new LLC? Just a JV agreement? Do we get a mortgage in both names? A title in both names?

I would think we need to talk with a lawyer regarding a lot of this but I’m just trying to get a basic idea of what is common so I can talk to him more intelligently about our options. 

Any help or insight is greatly appreciate. Thanks to the community for all the help thus far!

Jason

When I JV with someone, sometimes we set up an LLC with each LLC as 51/49 partners with 50/50 split on profits. Someone has to be able to make decisions, so thusly 51/49 ownership.We have a JV agreement that outlines the general reason and goals as to why we are getting together. Each house then has it's own JV agreement with address, legal description etc and what the details are for that particular house. The Title goes in the name of the LLC. In my case, one of us is the money guy and the other is the "work" guy so there isn't any confusion about making decisions. My partners and I have made a lot of money using this set up. That way they can partner with other people and I can partner with other people without confusing any particular property.

Thanks Mike, helpful information. 

For those of you that split multi family property cash flow, do you determine this net cash flow on a monthly basis? Or do you set aside amounts for repairs/cap ex/utilities/ vacancy every month as reserves and split up the remaining difference?

I am in a couple of three way partnerships which are LLCs. What we do is keep about 3-4 months of 'reserves', meaning if the rent is 5K per month we keep a balance of 15-20K in the checkbook. We then Quarterly take a look at the balance and if there seems to be an 'excess' we take a distribution. Some quarters we have hardly any unexpected expenses. Others like the last quarter of 2017 we had to reside a duplex that had rotting wood siding, a furnace to replace, and two fridges - that pretty much sucked up with reserves so no 4th quarter distribution. 

As far as 'how' to set things up since there are 3 of us we chose an LLC (which also covered what happens to each of our shares if we die and how the ongoing operation would compensate our heirs if they decided NOT to cash out too). In our case with the LLC, I beleive the Title and Deed are in the LLCs name, and we all three had to sign on the mortgage.

In either this tread or another one here on BP this week it was pointed out that if there are only 2 partners that an LLC should be 49-51% voting rights in case there is an unforeseeable issue to agree on. Profits can still be split 50-50.

Dan Dietz

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