Structuring partnership deals

9 Replies

I have a couple money partners and I have set up the following structure. Hoping for some feedback and suggestions on improving this or what other people have done for structuring the deals.

(1) Set up a parent LLC which is owned 50-50 with my money partner.

(2) set up a subsidiary LLC for each property purchased, which is 100% owned by the parent LLC.

(3) purchase properties personally with myself and money partner on title and note.

(4) quitclaim deed the property to the subsidiary LLC

This structure was recommended by an attorney to isolate each property for liability reasons and to keep books, etc separate. If a property needs to be sold, also easy. Anyone using something different? Are there problems I’m not anticipating?

An alternate would be to set up one parent LLC that acquires all properties.

My business plan is to buy and hold rental properties long term and to keep my partner in the deals long term 10-15 years until properties are paid off. Maybe even longer.

Originally posted by @Christian Becker :

I have a couple money partners and I have set up the following structure. Hoping for some feedback and suggestions on improving this or what other people have done for structuring the deals.

(1) Set up a parent LLC which is owned 50-50 with my money partner.

(2) set up a subsidiary LLC for each property purchased, which is 100% owned by the parent LLC.

(3) purchase properties personally with myself and money partner on title and note.

(4) quitclaim deed the property to the subsidiary LLC

This structure was recommended by an attorney to isolate each property for liability reasons and to keep books, etc separate. If a property needs to be sold, also easy. Anyone using something different? Are there problems I’m not anticipating?

An alternate would be to set up one parent LLC that acquires all properties.

My business plan is to buy and hold rental properties long term and to keep my partner in the deals long term 10-15 years until properties are paid off. Maybe even longer.

 Hey Christian,

I want to clarify something, first. When you discuss setting up these LLCs, are they all separate entities? Or are you talking about establishing a Series LLC, which can the privately file "child" series under the primary "parent" entity? (This article explains it better)

It sounds like what you are doing would be a perfect fit for the Series LLC, and some of the language you are using makes me thing this is what you are talking about. But if you are thinking of filing for each LLC separately you may be introducing a lot of extra work.

A quick look on the web shows they’re not available in my home state of Idaho or in the state of Ohio where I’ll be investing. Utah is next onus and close. Maybe set up there?

I'm interested in this as well. But as mentioned Idaho does not have a Series LLC option. I have just been setting up one for each property as my wife and I are the sole owners, it is fairly simple for tax purposes. And setting up in another state seems to create other issues. I have one for my in-state property and set up another one for my out-of-state properties but registered them as doing-buisess-as in that state with the LLC in Idaho.

Originally posted by @Christian Becker :

A quick look on the web shows they’re not available in my home state of Idaho or in the state of Ohio where I’ll be investing. Utah is next onus and close. Maybe set up there?

There are a few requirements to set up the Series LLC, but you can form the Series LLC within another state. There are a couple strategies that can be used to avoid the foreign filing fees that can be used - namely land trusts - so you don't have to be concerned with having to pay extra. This give you the opportunity to shop states for which one you prefer, my personal preference is the Texas Series LLC, so you have some options.

@Christian Becker Sounds complicated...what type of assets are you buying... what volume. An LLC is a great thing, but it really doesn't offer that much protection...well, not as much as many people believe. I've seen lots of guys structure through multiple states and it's never clean. LLC's here are $99 with no renewal fees, so it's pretty cheap if you decide to establish dozens...

@Brandon Sturgill

Looking to buy a few dozen in the near term. Ultimate goal owning several hundred doors.

Alternative would be to maybe set up one LLC that owns all properties. Or set up an LLC for something like every 5 properties. Doesn't isolate them as well obviously. But less hassle.

I'm also intrigued by the serial LLC. Will explore that concept. Seems like and answer to the problem in a simplified way that will provides protection.

@Christian Becker @Scott Smith

I have a similar question. If I purchase a house using a traditional mortgage am I still able to quite claim deed the property into an LLC? If so, would it still provide the same protection given that I purchased the house personally instead of the LLC and the mortgage is still in my name? I want to do this but am concerned that if a lawsuit ever happens that they'd still be able to find a way to my partners and my personal assets.

Secondly, I believe this would trigger the 'due on sales clause' in my mortgage. I've been told that it's something I shouldn't get too caught up on. Curious of others opinion on this.