How best to Structure Partnerships

Question

I am buying small multi-family properties. Currently I have a 4-plex and a duplex with one partner (Partner A) and I am under contract with another duplex but plan to buy it with a different partner. (Partner B)

The two properties bought with Partner A are in an LLC and my intentions were to start another LLC with Partner B. I am great at finding deals and bringing along other partners to help fund them.

My question is do I have to start a new LLC with each partner or is there an easier way to structure this? My fear is having 15 different LLCs!

Any advice would be appreciated!

Michael Ablan · Answer

@Justin Hroch  - Your time would be better spent consulting with an attorney on this one

Ashish Acharya · Answer

The issue here is not only legal but also tax compliance fees.

There might be an easier/efficient way but depends on who are your investors. Do they want to invest in the asset-specific deals or are open to the fund structure?

With the fund structure, you can have one MMLLC with all the new assets under SMLLC that do not have any federal tax filing obligations.  This needs deeper conversation with your CPA and attorney.

Aaron W. · Answer

@Justin Hroch Congrats on finding these deals!

You do not need to have an LLC for ever single property you acquire. You can group a few of them together before adding additional ones. It is all about your tolerance for the potential risk should something happen at one property and you find yourself with a lawsuit. By placing them in an LLC you will be insulated from the lawsuit to only those properties in the LLC, if you set it up correctly.

In the case of the two different partners, I would set up an LLC per partner and group a few properties together with that one partner. Do not comingle especially in a partnership.

You should also consult an attorney and CPA about your question as they will be able to provide true legal and tax advice for you on this question.

Best of luck!

How best to Structure Partnerships

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