How does one properly manage the capital of a REIG?

[Chase Gray]

Roughly a month ago myself and 5 other individuals established a Real Estate Investing Group (REIG). We’ve found a property that will provide a handsome return if we properly apply the BRRR Strategy. Each of the six investors, including myself, will be responsible for fronting roughly $17,000 in cash for the purchase and remodel of this property. We’re currently struggling with the financial structure of the REIG but we have a couple of Ideas: 1. One individual is “Gifted” the $17,000 from each of the other investors to purchase and remodel the property. 2. Establishing an LLC for the sole purpose of purchasing, renovating, and flipping this property. How have you financially structured your REIG’s? How do you recommend we structure our REIG? If we intend to flip in under six months how can we best avoid taxation? What other financial and tax advice can you offer us?

[Eamonn McElroy]

@Chase Gray

"Using an LLC for the purchase would limit our ability to avoid taxation..."

If you're talking about from a holistic perspective, maybe, maybe not.  You're still picking up the gain in total it's just who reports and pays taxes on it.

On the other hand, if it was the person with the lowest AGI to whom the money was gifted to and the property purchased by, so that taxes owed on the gain might be holistically low, it might be argued the principal purpose of this scheme is tax evasion and tax courts would probably agree.  Yes you read that right.  Plus you still have onerous gift tax exposure, probably gift tax obligation and use of lifetime exemption at various touch points.

The risk and (potential) gain are not worth the reward in my opinion, and you have no recourse if in the public eye if you initially claim these are "gifts".  Perfectly okay then for the individual to keep the money, buy a big screen tv and kick his feet up?

Business entity with an operating agreement is generally advisable when more than one person is involved.  I'd engage both an attorney and a tax CPA/EA.