Setting up Private Money Infrastructure
Hello all, Rich from Orlando here.
If you've seen my previous post, you know my situation regarding private money, but if you haven't here is a recap:
About a month ago, 3 investors (who are all construction contractors in multi-million dollar companies) came to me and asked if they could partner with me to fix and flip houses. I agreed in exchange for the following structure: We will split profits 50% to me (as I will likely be paying property gains tax) and 50% split among the investors based on their individual contributions. This is a beautiful deal for me because I'm essentially just finding the deals, orchestrating the deals, helping with rehab labor, putting the upfront closing costs down, and orchestrating the sale of the property.
Now on to the current situation. We have two offers on the table for houses in Titusville, FL that look like the following:
Purchase price (Cash): $30,000
Rehab: $15,000
Fixed Costs: $10,000
ARV: $70,000
Profit: $15,000
What I'm wondering about is how should I setup the deal from a legal standpoint? I intend to open a separate bank account to keep the accounting of the jobs from a tax standpoint much easier. Also, the house will be in my name. I assume that ultimately I should setup an LLC and list them as partners, but it is very likely that the actual investors will change over time and I don't want to have to bring new members and take off the former members with each job.
What I'm wondering is if it is okay to keep the house in my name, have a separate bank account, and just have the investors contribute to the account when the time comes to close. I'm an accountant so I will be keeping detailed records of the job costs. I assume that when the job is finished and sold, I will just pay all of the property gains tax and distribute the investors their principal and profits. Whatever is left is mine.
I would love some feedback regarding what other people are doing for small-scale jobs which are being funded from private money.
Thanks,
Rich Ellis