Real Estate Partnerships for 2 STRs
Raghavendra PillappaPro Member
Member since 2024 · 26 posts · 8 votesReal Estate Partnerships for 2 STRs
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Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votesThis 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.
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- 1yAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
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.
Vacation Rentals of Florida53 Reviews- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @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.
I agree with Andrew. You can configure this any way that suits all involved and reflects their contribution.
- Member since 2024 · 26 posts · 8 votes1yGreat, planning to have JV agreement and later transfer into an LLC. But great points about roles, responsibilities, profit sharing ! Thank you!
Quote from @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.
- Accountant , CPA, MBA in Finance, MS in Taxation · Redmond, WA · Member since 2025 · 172 posts · 135 votes1y
Your question asks essentially for legal advice and tax advice. And I can't give legal advice. But let me throw out a tax advice idea: I think you want to use an LLC which means you guys use the partnership tax accounting rules. Furthermore, you want to preserve the Section 199A deduction by not using guaranteed payments but special allocations of profits. For example, you do not want to have partnership pay you a (say) $20,000 guaranteed payment. You want a $20,000 special allocation. The Section 199A deduction will give you a $4,000, or 20%, deduction if your share of the deal is a special allocation. It won't if your share is a guaranteed payment.
BTW an attorney for liability reasons might advise you guys to set up a mothership LLC which owns two child LLCs each of which owns a property. This puts each property into its own LLC but still lets you file a single partnership tax return. This approach also works fine for Section 199A deduction if you follow recipe described in preceding paragraph.
P.S. Current tax law sunsets the Section 199A deduction for tax years that start after December 31, 2025. The "Big Beautiful Tax Bill" the house has passed, however, removes this sunset provision from the law.
- Member since 2024 · 26 posts · 8 votes1y
Quote from @Stephen Nelson:
Your question asks essentially for legal advice and tax advice. And I can't give legal advice. But let me throw out a tax advice idea: I think you want to use an LLC which means you guys use the partnership tax accounting rules. Furthermore, you want to preserve the Section 199A deduction by not using guaranteed payments but special allocations of profits. For example, you do not want to have partnership pay you a (say) $20,000 guaranteed payment. You want a $20,000 special allocation. The Section 199A deduction will give you a $4,000, or 20%, deduction if your share of the deal is a special allocation. It won't if your share is a guaranteed payment.
BTW an attorney for liability reasons might advise you guys to set up a mothership LLC which owns two child LLCs each of which owns a property. This puts each property into its own LLC but still lets you file a single partnership tax return. This approach also works fine for Section 199A deduction if you follow recipe described in preceding paragraph.
P.S. Current tax law sunsets the Section 199A deduction for tax years that start after December 31, 2025. The "Big Beautiful Tax Bill" the house has passed, however, removes this sunset provision from the law.
Thank you, Stephen for the tax advice. How do we take benefit of STR tax code considering material participation of 500 hrs on each property? Instead of single partnership tax return, filing under LLC or as individually would there be any benefit? Appreciate breaking down the Section 199A. Very helpful!
- Accountant , CPA, MBA in Finance, MS in Taxation · Redmond, WA · Member since 2025 · 172 posts · 135 votes1y
Quote from @Raghavendra Pillappa:
Quote from @Stephen Nelson:
Your question asks essentially for legal advice and tax advice. And I can't give legal advice. But let me throw out a tax advice idea: I think you want to use an LLC which means you guys use the partnership tax accounting rules. Furthermore, you want to preserve the Section 199A deduction by not using guaranteed payments but special allocations of profits. For example, you do not want to have partnership pay you a (say) $20,000 guaranteed payment. You want a $20,000 special allocation. The Section 199A deduction will give you a $4,000, or 20%, deduction if your share of the deal is a special allocation. It won't if your share is a guaranteed payment.
BTW an attorney for liability reasons might advise you guys to set up a mothership LLC which owns two child LLCs each of which owns a property. This puts each property into its own LLC but still lets you file a single partnership tax return. This approach also works fine for Section 199A deduction if you follow recipe described in preceding paragraph.
P.S. Current tax law sunsets the Section 199A deduction for tax years that start after December 31, 2025. The "Big Beautiful Tax Bill" the house has passed, however, removes this sunset provision from the law.
Thank you, Stephen for the tax advice. How do we take benefit of STR tax code considering material participation of 500 hrs on each property? Instead of single partnership tax return, filing under LLC or as individually would there be any benefit? Appreciate breaking down the Section 199A. Very helpful!
Material participation, you're right, becomes trickier in partnerships. Basically, you both need to participate more than 500 hours in other to both get material participation.
- 1yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Hey @Raghavendra Pillappa, lots of good advice in 3 posts!
I would get with an attorney and CPA to set this up. It is important to do it correctly and include out clauses and details in case someone wants to exit.
The primary LLC (or LLP) with each home in it's own LLC isn't a bad idea. It isn't something that I would normally go with unless I had 5 or more properties but with the partnership, it could add a layer of security.
Make sure you have the insurance correct. A comprehensive STR policy.
- Member since 2024 · 26 posts · 8 votes1y
Quote from @Michael Baum:
Hey @Raghavendra Pillappa, lots of good advice in 3 posts!
I would get with an attorney and CPA to set this up. It is important to do it correctly and include out clauses and details in case someone wants to exit.
The primary LLC (or LLP) with each home in it's own LLC isn't a bad idea. It isn't something that I would normally go with unless I had 5 or more properties but with the partnership, it could add a layer of security.
Make sure you have the insurance correct. A comprehensive STR policy.
Thank you, Michael. Yes, i am getting a real estate attorney to make this easy for us and also have all the strategies to scale and not break the partnerships. We are also thinking of setting up one LLC for now. Also, would have see what the attorney has to say about "economic effect" and qualifying income effect. Appreciate it.
- 1yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
@Raghavendra Pillappa You're on the right track—since your partner is contributing most of the capital and you're handling operations, structure a multi-member LLC with a clear operating agreement that reflects those roles. Offer your capital partner a preferred return (typically 6–10%) before profit splits. After that, profits can be split 50/50 or adjusted based on your operational involvement. You can also structure compensation through a management fee, additional equity, or a tiered waterfall where splits shift after hitting certain return thresholds.
For risk management, consider either one LLC for both adjacent properties or two LLCs under a holding company if liability separation is important. Include clear terms for refinance proceeds, capital accounts, and exit provisions. From a tax perspective, the LLC will issue K-1s, with income and depreciation allocated per your agreement. Work with a real estate CPA to handle depreciation, cost seg, and proper allocation of tax benefits. Structuring it right now protects both parties and supports long-term scalability.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
INVESTOR FRIENDLY CPA®5241 Reviews- Member since 2024 · 26 posts · 8 votes1y
Quote from @Ashish Acharya:
@Raghavendra Pillappa You're on the right track—since your partner is contributing most of the capital and you're handling operations, structure a multi-member LLC with a clear operating agreement that reflects those roles. Offer your capital partner a preferred return (typically 6–10%) before profit splits. After that, profits can be split 50/50 or adjusted based on your operational involvement. You can also structure compensation through a management fee, additional equity, or a tiered waterfall where splits shift after hitting certain return thresholds.
For risk management, consider either one LLC for both adjacent properties or two LLCs under a holding company if liability separation is important. Include clear terms for refinance proceeds, capital accounts, and exit provisions. From a tax perspective, the LLC will issue K-1s, with income and depreciation allocated per your agreement. Work with a real estate CPA to handle depreciation, cost seg, and proper allocation of tax benefits. Structuring it right now protects both parties and supports long-term scalability.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.Thank you, Ashish for your valuable inputs. Right now, thinking about splitting cash flow and ownership 50/50 with capital recapture through depreciation/cost segregation studies.
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