Rental Property Investor · Dallas, TX · Member since 2018 · 37 posts · 13 votes
I’m looking at going into a deal with someone that already owns a piece of property. We are essentially supplying the tenants in exchange for equity in the property as opposed to a percentage of the income. We have a few other reasons to do it this way as well.
My question is simply, is all I need to do is have them add us to the deed and an attorney provided contract of the terms? Is there anything else you have found to be prudent in equity deals, paperwork or otherwise? We’re all in Texas FWIW.
If the property is owned by an entity such as an LLC then get equity in that entity via an increasing ownership percentage. Make sure you have an attorney look over the structure though to make sure you are not on the hook for the acts of the other owners (partners) in the deal. Also make sure you have minority rights since if you own a small part of an entity you may not be able to vote to liquidate property if you want to be paid out and leave it.
Getting on the deed also makes you liable. Make sure there is equity in the property, what is the debt, what are the expenses, etc? What are your tax consequences with the terms? Bring your cpa into the review process.
Partnerships are difficult to say the least. An attorney (structuring, buy/sell, etc.) and CPA are two vital elements to this equation. I've seen partnerships where things went south and one partner further encumbered the property which essentially stripped it of equity. Another partnership ended up with one party having FTL's which attached to the property. Know thy partner well and have as rock solid agreement. In the end, an agreement is only a piece of paper and someone who wants to bail on the agreement won't allow the paper to stand in the way. Sooooo much more to consider than simply deeding a portion of the interest over to you. Don't step over a dime and get legal advice on this forum, seek competent legal counsel so you don't dig a hole you can't get out of.
If the property is owned by an entity such as an LLC then get equity in that entity via an increasing ownership percentage. Make sure you have an attorney look over the structure though to make sure you are not on the hook for the acts of the other owners (partners) in the deal. Also make sure you have minority rights since if you own a small part of an entity you may not be able to vote to liquidate property if you want to be paid out and leave it.