Building a house with a partner, want to BRRR - advice?

[Kathy Kathman]

I'll try to keep this as clear as possible. This probably should go in legal, but more BRRR's may have experience with it.

I own a lot near Mt Rainier, great location for an STR. My friend, and RE Agent, would like to fund most of the build and we will GC it. in the end it will be a bout a 60/40 split. There will be NO LOAN on the property, all cash. I've handled Perc, soil test, Septic plans and permits, and the architect. Essentially anything that has been completed, I have paid for.

After it's built, we may sell it, or STR it, depending on the market. But first, we would like to pull as much cash out of it as we can and get a mortgage. Can't really do that easily if the house is owned by an LLC we create, since the LLC will have no income, it would be based on our incomes as individuals. This tactic as we all know, will help reduce taxes once it is sold (this will not be an indefinite hold property) since the proceeds will be "less" the outstanding mortgage. It would not be considered a primary residence for any of us.

I understand the purpose of establishing an LLC for a rental property, either LTR or STR, which I believe would be best done AFTER we have gotten a mortgage on it. We also need some kind of agreement since we own the land, will be doing all the work, and he is the cash-guy partner. I also know that as the house is built, on property that is in my name, the whole kit and caboodle will be under my name, unless, before we start building, I add him to the Deed.

I have several questions: What kind of agreement should we be putting in place for the Build? (obviously all the terms and details, notarized etc.)   Does it make more sense to add him to the land deed (this is a VERY trusted non-family member and his wife, fully entrenched top of the integrity line RE agent) so we both own the property as we build and it ultimately will be in our names together?  Hoping for some direction here so I know what kind of Consult I should be looking into.  We want to avoid as much taxation as possible, but make sure each of us is covered legally. 

Thanks for any assistance!

[Andrew Postell]

@Kathy Kathman sorry I didn't see this initially but some pointers here:

1. You can ABSOLUTELY get a loan in your LLC/Partnership name. Your business does not need income to qualify for a loan.

2. You should ABSOLUTELY be placing the property in your Partnership name as well.  Not in your personal names.

3. The Partnership agreement would outline the necessary wording to accommodate such a split in profits and responsibilities.

I hope those answer your questions but maybe you have everything figured out at this point.  Thanks!

[Steven Goldman]

Ditto Andrew Postell he is dead right on this one. I can only add that the rates are climbing precipitously so the sooner you begin and complete your construction the better off you will be. If you are thinking about flipping it you might want to use a rehab loan so that you do not risk all of your money in a unstable market. If you are flipping that is the best way to do it. if you are holding, you may find refinancing challenging if STR financing dries up due to the current banking environment. Good luck and keep moving forward