Proper RE holding structure. Joint Venture vs. LLC (or both)

4 Replies

Hi All,

I am forming a partnership with an 1 other investor to acquire a property. I'm having trouble determining the best structure for the partnership and if I should be forming a LLC, a Joint Venture or both.

Is the simplest/best way to do this is to just have the an LLC acquire & hold the property and then have ownership and responsibilities defined in the LLC management agreement? Or should a JV be formed above the LLC that defines rolls, profits, fees, etc.? If a LLC has the advantage of limiting liability that is not provided by a JV, when/where would it be advantageous to use a JV?


@Anthony Casa I haven't seen JV's used. Typically you see LLCs...some disregarded and often a separate property management company if dealing with multiple properties being self managed. Not sure your goals and what each party is bringing to the table.

Christian

Thank you @Chistian


 Just for added context - I will be the managing member and also contributing ~80% of the equity. The other party will be a passive minority investor. We will be acquiring one property and I will be managing almost all aspects of the project including property management. Profits/distributions will be distributed pro rata with our ownership share less some fees being paid to me for finding the deal, managing the property, etc. (e.g. acq fee, incentive promote, AM fee). 

So I take it you believe a simple LLC between us with an operating agreement is sufficient?

Originally posted by @Anthony Casa :

Hi All,

I am forming a partnership with an 1 other investor to acquire a property. I'm having trouble determining the best structure for the partnership and if I should be forming a LLC, a Joint Venture or both.

Is the simplest/best way to do this is to just have the an LLC acquire & hold the property and then have ownership and responsibilities defined in the LLC management agreement? Or should a JV be formed above the LLC that defines rolls, profits, fees, etc.? If a LLC has the advantage of limiting liability that is not provided by a JV, when/where would it be advantageous to use a JV?


Anthony, if you expect to enter into more partnerships, you don't want partnership or LLC for each venture from a taxation perspective. You would benefit from a holing company that will hold other SMLLCs. You need to talk to your tax advisor to determine the best structure for this because you don't want to lose the entire cash flow from the properties to cover your tax compliance fees.

@Anthony Casa find an attorney who has syndication experience. They will have agreements off the shelf. The waterfall of cash flows with the promote needs properly documented in the operating agreement and legally structured. Plus you may want separate agreements for the asset management and property services. You probably want a separate LLC you own to render the property and AM services. A disregarded LLC that owns the asset might be useful in some cases as well.

Christian