Partnership without an LLC/Corp

1 Reply

Question for (I'm sure many) people that have been in this situation. Here is the lay out. 3 people. All three of us are established in our own careers at age 30. All of us have been flipping houses together for the past 2 years and want to start to get into the buy and hold (rental business) together. We work very well together and everything has been going smoothly. Here is the debate. For STARTERS we don't know if we should open an LLC together and start to buy properties with private money via LLC OR if we should each get conventional loans independently (tenants in common) with an operating agreement in place. Example: Party 1 gets a mortgage solo with party 1,2 and 3 on Deed. Next house party 2 gets a mortgage solo with party 1,2 and 3 on Deed. Next house party 3 gets a mortgage solo with party 1,2 and 3 on Deed. This continues via conventional loans vs just starting with an LLC. The pull for conventional loans independently comes from us getting lower interest rates and 30 year amortizations (higher cash flows) but we dont know if it will get sticky during tax season being that we arnt all on the mortgage together. If anyone could shed some light on how they started their partnership (being an LLC or tenants in common) would be much appreciated. Just want to know if anyone out there has NOT done an LLC with 3 or more people to start buying rentals while scaling up (purchasing 2-3 properties a year) and how it has affected them.

@Robert Sapienza

It is a dilemma lower interest better terms most likely but less asset protection. Many would say get good insurance, not an LLC, and call it a day.

The banks will influence your answer as well. Individually you may get limited to the number of loans that the banks are willing to give each individual. It may be a combination of both. I use to use trusts but now the rate and terms  are not as good and banks shy away from them.  

The accounting will be easy and most likely insignificant to the decision. Ask your accountant. 

I would also have an agreement among the "tenants in common" or as an LLC so when the circumstances change, someone dies, or gets sick and wants to sell, divorce, etc you agree on how to handle the break up.- basically a prenuptial.