Entity Structuring Advice??

Question

My fiance and I are buying a multifamily home to owner occupy. We are going 50/50 on it. However, I'm paying with my own money. And he is getting private lending. His private lender is a family member, who is proposing an entity structure that is an LLC owned 50% lender, 50% my fiance and me, with insurance and operating costs funded by lender.

This all seems quite complicated to me, so I'd like to find someone with entity structuring experience to speak to. Is there a lawyer that specializes in this? Can anyone recommend one? The house is in NJ.

Brian Burke · Answer

The fairest way to you would be for the family member to make a loan secured by his half-interest. If he doesn't pay, the family member can foreclose on his half interest and then you and the lender would each own half.

If you are paying your half in cash, you can't use the proposed structure because you'll have paid for half of the property and the LLC would be owned 50% by the lender and 50% by you and your fiancé which means that you'd own 25%. You could own 50% of the LLC and let the lender and your fiancé split up the other 50% however they want--but now you have the added complexity of doing an LLC tax return and issuing K-1s which is likely more complex than you want.

Steve Vaughan · Answer

Lenders get a lien on the property, not ownership.

No way I'd have 2 partners. You will only have 25% ownership?

I'd wait until I was married and get a normal loan where I own it 100% with my spouse.

Yinna Wang · Answer

Thanks @Dave Van Horn! I'll look into him.

Dave Van Horn · Answer

Hi Yinna,

I would recommend talking to Craig Zappetti. He's a securities attorney who also specializes in entity structure, plus he's local to you (in NJ with his main office in Philadelphia).

You can find his info here:

https://www.fisherbroyles.com/craig-zappetti/

Best of luck,

Dave