how do you setup a partnership or investor on specific deals?

Question

I am trying to figure out the best way to set up a limited partnership. I have a family member that wants to invest with me in a few houses. He would be using money collected in a 1031 exchange. I want to know how is the best way to title the property? If both of us are not on the title I would guess one party would get the benefit from the purchase. Is it more trouble to have 2 parties on a property title or should i just buy the property myself and pay dividends to him as an financial investor?

I don't have a real estate license so if I'm to benefit from this, I have to be listed on the title as an owner.

Bill Exeter · Answer

First, if your family member/investor is in the middle of a 1031 Exchange, then he/she must acquire an interest in real estate (not an interest in an entity such as a partnership) in order to successfully complete his/her 1031 Exchange transaction.

Generally, this means that he/she would acquire an undivided interest in the property as a tenant-in-common and you would own the remaining undivided interest in the property as a tenant-in-common.

Second, you should also give some thought as to what your exit strategy might be for both of you. The tenant-in-common ownership structure provides you with the most flexibility in terms of your ultimate exit strategy, but may not solve other issues/goals that you may be considering.

Just my two cents.

Bill Exeter · Answer

Buying into or selling out of beneficial interests in a Title Holding Trust (Land Trust) do qualify for 1031 Exchange treatment. In fact, Revenue Ruling 92-105 actually addresses the ability to 1031 Exchange beneficial interests in Land Trusts.

Chris Piper · Answer

@Christopher Zink Have you considered setting up land trusts for each property? Might be a good route to go. Not sure how that works when using the 1031 exchange though. Just an idea.

Christopher Zink · Answer

Thank you for the explanation @Bill Exeter

how do you setup a partnership or investor on specific deals?

how do you setup a partnership or investor on specific deals?

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