Is it a good idea to create a partnership for MHPs?

Question

I am very new to this mobile home park ownership idea. I'd like to get other peoples perspective on this idea. Also, I'm thinking about going into a partnership to purchase and run a MHP.

Please send out your thoughts or ideas.

Thank you.

Curt Smith · Answer

Same tips as above. We used a smart RE attorney to create a property specific LLC, and write the opperating agreement (the meat of an LLC) to show cash split, profit split, voting rights and what heppens in death, family buy out etc. For those who do not know, you create an LLC and get EIN at IRS, the register the LLC with your secretary of state, listing the officers, registering agent (often your attorney) and you upload the operating agreement. The operating agreement is the road map for the entity. Anyone can go through the motions of punching buttons and using your credit card but few put the necessary thought into writing the operating agreement. So most LLCs aren't worth 10 cents or provide the liability protection or what ever the hoped for purpose they where created for.

A partnership LLC operating agreement is written like a Joint Venture agreement including statements of risk, should the project fail. What recourse do the partners have against the project manager... All things you'd want spelled out and signed by all parties.

A partnership LLC operating agreement is written like a Joint Venture agreement including statements of risk, should the project fail.  What recourse do the partners have against the project manager...  All things you'd want spelled out and signed by all parties.

Account Closed · Answer

There is a HUGE difference between a "Partnership" and an "Limited Liability Company."

A partnership is an agreement between two or more people to form a business for profit. Depending on your jurisdiction, the agreement may be verbal or in writing. The partnership does not need to be licensed with the state your operating in usually. The downfall of a partnership is you are jointly and severally liable for all actions taken by every partner. If you have a partnership agreement you can limit liability in some ways by prohibiting certain actions. However, if your partner is sued and a judgment is entered against them-you are also liable for the full or partial portion of the judgement; your only recourse would be indemnification against your partner.

A LLC is an entity, separate from the parties pulling the strings, that protects the owners from liability individually. LLC's must be filed with the state in which they do business. The upside is the protection from liability; the entity is solely liable for any judgement against it-you are not personally liable. A operating agreement is key like another post mentioned. The op-agreement will lay out who has actual authority to act on behalf of the LLC and will protect other members of the LLC if someone acts beyond the authority granted to them. Also, it can lay out the procedure for many of the issues that may arise during operation of the LLC.

I would suggest to read the laws within your jurisdiction relating to Partnerships and LLCs. Many states use RUPA and have adopted special laws relating to LLCs. After reading everything you can find, I would strongly suggest consulting an Attorney to structure your entity. The legal fees can be written off as "Start-Up Business Costs" if you do actually form an entity-the Attorney should be aware of this and if not ask about the exception for such.

Rich Ferradino · Answer

I purchased a 27 unit MHP with 3 person partnership recently and like everyone else said use a RE attorney. Also if you are using a partnership I recommend you have 2 accounts. 1 account where your cash guy will be putting money in for down payment, expenses, improvements, etc. Have the other account for rents collected and used the rents collected to pay for water, trash, taxes, etc. That way it is easier to keep track. One issue I ran into is my partner wanted a higher ROI and wanted to do this by making myself and other partner not take a monthly income check, but rather pay down his money into the park. We will/are going to do so but the contract says after 2 years owning the park, however he waned it now. So I'd spell how what kind of returns people are getting if you guarantee any, and also if they are entitled to increased equity from filling vacancies and rent raises. Also spell out property management and who is responsible for that.

Jeffrey H. · Answer

Use an attorney to set up a very explicit operating agreement as part of your LLC or whatever you setup, especially when this is a 2 person partnership.  One person should make the operational decisions on the ground as to avoid stalemates that prevent decisions being made.  Also need provisions for dispute resolution.

Rachel H. · Answer

Be sure it's structured in a way that you can get out of the deal, if someone buys your shares. I see this all the time when one party wants to sell yet another party does not. What happens is one person walks away while the other takes over the partnership.

Things happen and circumstances change. Be sure you have a way for all parties to get out, should this issue come up down the road.

Is it a good idea to create a partnership for MHPs?

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