What else should I do to protect myself in flip partnership?

Question

Quick backstory. I met my partner/agent when I inquired about a few apartment units as possible rental properties, she was giving me suggestions on how I could renovate the apartments and thus raise the rent, but being my first time I wasn't comfortable. Later on I approached her about possibly partnering on a flip, we agreed on a 50/50 split with me purchasing the property and her and her partner paying for renovations.

My worry is that my name is not on the title or in the LLC. We did write up an agreement stating I'd get my equity back+50% of profits, but I'm not sure if I should be adding anything else for my protection? Both partners are licensed real estate agents

J Scott · Answer

Did you have an attorney create the agreement?  Does the agreement discuss all the edge-case situations, like if one party dies, if one party declares bankruptcy, if the project loses money, if the parties disagree on something like listing price or sale price, what happens if one party walks away, etc.?

Sounds to me like you were very trusting with these people you don't know very well -- at this point, you can just hope that they do what they say they will or you can try to fix the situation by asking them to sign a more formal agreement that you have an attorney create for you.

Personally, I wouldn't just trust that they'll do the right thing...unless you don't care if you lose your money...

Brian Pulaski · Answer

Did you ask for your name to be on the title or LLC and they said no, or did it not come up? You purchased the property with your funds correct? If so, how would they argue not having your name on the ownership papers.

I have never done something like this, but I would want to create an LLC that owns the property, and both are partners in the LLC. If you invested the money in to buying the house, at this point you are the full owner, as your partner has invested $0, correct?

Account Closed · Answer

The biggest drawback is not being on title or owning shares and voting rights for the LLC.legal agreements are basically useless because the cost of ligation is excessive

Michael Nieves · Answer

Thanks for all the input guys, I contacted an attorney and he's writing up a promissory note along with an affidavit for the property. To my understanding this way I have lawyer written documents that I can use in court and they cannot sell the property without my knowledge

Scott Matthew C. · Answer

@Michael Nieves worse case scenario you call up an attorney, explain your story, and pay for his advise and skill.

Your attorney may advise to place some kind of equitable interest lien on the property. I hope you have some kind of paper trial for him to work off of.

Best of luck!

Michael Nieves · Answer

Good call, I contacted the lawyer Dane suggested and are currently working something out, I'm sure my partners are good people but better safe than sorry. We're running into an issue with agreeing on titling, I've been told adding my own name to the title then defeats the tax benefits of an LLC

J Scott · Answer

Promissory notes are pretty much "fill in the blank" for most attorneys -- a title company will generally provide this to you for free (along with a deed of trust or mortgage) if you're closing the deal with them.

JV agreements are going to be much more specific to the deal/relationship, and can be quite complicated when you factor in the edge cases (what happens if someone dies, what happens if someone walks away, etc).  These types of agreements aren't necessary when things go well; they are generally only important when you run into a major issue.  And "fill in the blank" won't cut it for major issues.

$2K may be a reasonable investment if you can use the agreement for future relationships as well...

Dane Ohlen · Answer

It shouldn't cost that much to draw up an agreement.  Pm me and I can send you contact Info for my real estate attorney.  I just had him draw up a promissory note for a house that we had another investor put in 50k towards renovations.

Michael Nieves · Answer

Good points! I contacted a lawyer and they quoted me over 2k to write up a joint venture agreement, which seems a bit steep. Do you have any recommendations on legal entities in the DFW area?

What else should I do to protect myself in flip partnership?

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