How to structure a partnership deal?

5 Replies

Short and sweet... Just connected with a local investor and looking to partner on a deal. I have a HELOC (cash) ready to go. He will probably get a loan. Going in 50/50 on the purchase and rehab. Strategy is BRRRR. We’d both purchase through our LLC 50% each. Thinking use a joint account between us to collect rents and hold funds for repairs and cap ex funds etc Any thoughts on how to structure?

@Jonny Morris , just off the cuff, first set up an LLC with both of you as members. Have a very thorough operating agreement. I mean very thorough. Have for, who puts up the money, how much, who does what work, who does work you didn't think about, who does the books, what happens if you need more money than you thought? What happens if one of you does not do what you were supposed to do? How do you break a tie if you disagree? The big one is how do you end the deal if it goes bad? what if one of you dies or becomes ill and cannot do work? How do you split profits if you dissolve it? What about the doctrine of opportunities? If a new deal comes up does it have to go to your LLC or can one of you do the deal and exclude the other? What about a deal far away? What decisions can be made without consulting the other person? What will you do if you cannot contact the other person? There are a ton of things that need to be set out now, so they are not as big of a problem later.

With a house with 1 party getting a loan then another later both when you BRRRR, an LLC is going to be difficult and the loan terms will be commercial. I for one cannot stand commercial terms. Perhaps you may like adjustable, callable with short terms? With a side of balloon and the added benefit of reporting your financials to them every year? No thanks for me. That gets old quick.

I would explore TIC with % listed and a JV agreement that outlines the excellent post of @Jerry W that describes the potential pitfalls of the ship that often won't sail, I mean partnership. Death, divorce, disinterest, drug use, default....woo-hoo!

@Jerry W. Thanks for your detailed input.

Do you foresee a system without both being members of the same LLC? I’m not against it just looking to explore options.

Has anyone had experience of the cash side of the deal?

Rent comes a joint bank account?
Cap ex/repairs etc ...from the joint bank account?

Looking to create a transparent system between us so it’s all out on the table!

@Jonny Morris Why would you separate LLCs? Will you have 2 LLCs own the property? That seems kind of messy. How do the owners decide what to do? Who gets rent? Who pays for repairs? Who gets to take the depreciation? What if one LLc sells it's share? There would be no prohibition. I cannot see any value in having multiple LLcs own part of a property. Are you going to create a monster contract for what each LLC can and cannot do? You could do it yes, but why would you want multiple LLCs owning the same property?

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