All Forum Posts by: Max Kats

@Wayne Brooks

He does take the management fee but I know there is no profits in that for him, it only manages properties he’s an owner in so they go above and beyond.

On a future deal I may be in his shoes so I am curious how it looks from both sides.

How would you structure it? Do you see any angles that would make it more fair.

Would you go into a deal like this? If not why not and what would make it more appealing?

@Alex Olson

It is a close partner and we are both happy with the deal. I’m trying to gauge it from others perspectives and see what their thoughts are.

How would you structure it? Do you see any angles that would make it simpler, more fair.

Would you go into a deal like this? If not why not and what would make it more appealing?

I have an great deal. The numbers don't matter I'm concerned with your opinions on the the structure, fairness and possible suggestions on how you would structure this deal in a way that is fair for both sides.

I found the deal and brought the entire down payment - I am a realtor and will get a commission on sale (paid by seller)  

My partner secured decent financing, I would not otherwise be able to secure (recourse loan we are both personal guarantors)

we are 50/50 equity partners in the deal as members of LLC

My partner will handle, stabilization, management, rental, repairs, decision making, accounting. (There is a 10% management fee added into expenses but someone still needs to give the management company direction- my partner is the management company but 100% trust worthy eats the small repairs and fixes and does a fantastic job no issue with this item at all. I sleep easy at night.

I will be hands off after closing. 

We will split the profits 90/10 with me getting 90% of the profits. he will pay me back 10% at an unspecified time or at the point of refinance 3-5 years. (we dont plan to sell)

At the cash out refinance we will split the money 50/50 and he will use his portion to repay my 50% of the deal and at that point profits will be recalculated to properly reflect the equity. 

Is this fair? Who has the better deal? Am i missing something? How would you guys do it? 

I am having a hard time knowing that 10% of my equity is not earning a return for 3-5 years

Also since i brought the entire down payment a 50/50 equity split seems rich but I know that the labor and management obviously deserves compensation.  

@Dave Foster

Thank you so much for the detailed answer, this is very helpful.

@Dave Foster

Thank you so much for the two options. I prefer the first one as I'm risk averse when dealing with IRS. In the scenario when the LLC acquires two new properties:

Can the member then distribute directly to a new LLC or would they first have it distributed to themselves individually and then transfer to an LLC?

How do partners in multiple deals 1031 up?

Assume I am a member in 5 LLC's and we liquidate all 5 underlying assets. Would the 5 LLC's be the purchaser of the larger asset or would the only way to achieve this in my situation be option 2 and sell the assets as an individual?

I know it seems specific but I imagine real estate investors run into this issue all the time.

I own multiple properties in individual LLC's with various partners. Is my structure sound or is there a better way to structure it for future 1031 treatment.

I plan to hold but thinking of an exit strategy and also if a bigger deal comes up to step up the basis.

@Lauren Speidel

Thank you for the prompt response it was a great help.

@Paul Moore

Thank you! They both provided great insight.

I have been pondering this tax question for some time. Maybe you guys can help me out. If you own a property in an LLC and sell the underlying property who gets 1031 tax treatment. Do you have to purchase the new asset in the same LLC or will it flow through to the member.

So if I am member of 123 Main Street LLC which owns a duplex and then sells that duplex. Will the 1031 exchange be done by Myself or by 123 Main Street LLC.

If it's done by 123 Main Street LLC is it a hassle to change the name later if new asset is 321 Broad Street. It can be confusing when someone owns several entities not named after the underlying assets.

What i want to 1031 the proceeds but my partner is comfortable with tax hit or we want to invest in separate properties can I 1031 my half, or dies it have to be 123 Main Street LLC that does the exchange?