Quote from @Kurt Patrice:
Hi All!
My siblings and I recently received some capital and are looking to partner up into a shared rental property. Any insight into the best way to partner with family? We have equal funds but want to explore what a partnership will look like v an LLC. Based in NYC but exploring various of town markets.
Thanks in advance!
Hi Kurt!
Partnering with family to invest in a rental property can be both rewarding and complex, especially when emotions and finances are intertwined. Given that you and your siblings have equal funds and are looking for a shared investment, you’re already starting from a place of alignment—which is a huge advantage. However, it’s crucial to establish clear agreements early to avoid misunderstandings down the line.
There are two primary structures you can consider: a general partnership or forming a limited liability company (LLC). A general partnership is the simplest way to co-own a property. It doesn't require formal registration beyond a partnership agreement and tax filings, which makes it relatively inexpensive and quick to set up. However, the major downside is liability—each partner is personally liable for the debts and legal issues of the partnership. If something goes wrong with the property (e.g., a lawsuit or unpaid debt), all partners' personal assets are potentially at risk.
In contrast, forming an LLC provides liability protection, shielding your personal assets from claims related to the property. LLCs also offer more structure, including defined roles, profit-sharing agreements, and the ability to clearly document capital contributions, management responsibilities, and exit strategies. This can be especially helpful with family, as it formalizes expectations and reduces ambiguity. LLCs are also flexible when it comes to taxes—you can elect to be taxed as a partnership, meaning income flows through to each member's tax return, but you still get the protection of a corporate entity.
Because you’re based in NYC but exploring out-of-town markets, it may make sense to create the LLC in the state where you buy the property to avoid having to register as a foreign LLC. However, in some cases—such as investing in multiple states or seeking anonymity or tax advantages—a state like Delaware or Wyoming may be attractive for forming the parent LLC, with subsidiary LLCs holding individual properties in their respective states.
Regardless of the structure you choose, you should have a clear operating or partnership agreement that addresses ownership percentages (even if equal), how income and expenses are shared, who manages the property, how decisions are made, how new members can join (if ever), and how the partnership dissolves or exits. Even among family, treat this like a business deal. Bringing in a lawyer to draft or review your agreement is worth the investment.
Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.
