Real Estate Partnerships for 2 STRs

[Raghavendra Pillappa]

I’m reaching out for guidance on structuring a real estate partnership involving two adjacent properties we’re under contract. My partner will be contributing the majority of the capital, while I will bring operational expertise—including project management and short-term rental operations.

We’re exploring the best way to structure the partnership fairly to reflect the different types of contributions. Some of the points we’re considering include:

• Forming an LLC (or two, depending on risk exposure per parcel)
• Allocating a preferred return to the capital partner
• Establishing a profit split that rewards both capital and operational roles
• Protecting each party’s interest in the event of a refinance, sale, or exit.

I will appreciate your input on how best to structure this from both a legal and tax perspective, including whether we should consider a tiered ownership structure, management fees, or profit waterfall provisions.

Appreciate your feedback! Thank you!

[Andrew Steffens]

This is highly personal, and highly customizable. You can either enter into a JV agreement or you can form an LLC with an operating agreement in place. Since it has to be titled to someone, I personally would form an LLC and do an operating agreement that outlines roles, responsibilities, profit sharing, and outlining who and how sale or refinance can be triggered, etc.