All Forum Posts by: Raghavendra Pillappa

@Raghavendra Pillappa You're on the right track—since your partner is contributing most of the capital and you're handling operations, structure a multi-member LLC with a clear operating agreement that reflects those roles. Offer your capital partner a preferred return (typically 6–10%) before profit splits. After that, profits can be split 50/50 or adjusted based on your operational involvement. You can also structure compensation through a management fee, additional equity, or a tiered waterfall where splits shift after hitting certain return thresholds.

For risk management, consider either one LLC for both adjacent properties or two LLCs under a holding company if liability separation is important. Include clear terms for refinance proceeds, capital accounts, and exit provisions. From a tax perspective, the LLC will issue K-1s, with income and depreciation allocated per your agreement. Work with a real estate CPA to handle depreciation, cost seg, and proper allocation of tax benefits. Structuring it right now protects both parties and supports long-term scalability.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Hey @Raghavendra Pillappa, lots of good advice in 3 posts!

I would get with an attorney and CPA to set this up. It is important to do it correctly and include out clauses and details in case someone wants to exit.

The primary LLC (or LLP) with each home in it's own LLC isn't a bad idea. It isn't something that I would normally go with unless I had 5 or more properties but with the partnership, it could add a layer of security.

Make sure you have the insurance correct. A comprehensive STR policy.

Your question asks essentially for legal advice and tax advice. And I can't give legal advice. But let me throw out a tax advice idea: I think you want to use an LLC which means you guys use the partnership tax accounting rules. Furthermore, you want to preserve the Section 199A deduction by not using guaranteed payments but special allocations of profits. For example, you do not want to have partnership pay you a (say) $20,000 guaranteed payment. You want a $20,000 special allocation. The Section 199A deduction will give you a $4,000, or 20%, deduction if your share of the deal is a special allocation. It won't if your share is a guaranteed payment.

BTW an attorney for liability reasons might advise you guys to set up a mothership LLC which owns two child LLCs each of which owns a property. This puts each property into its own LLC but still lets you file a single partnership tax return. This approach also works fine for Section 199A deduction if you follow recipe described in preceding paragraph.

P.S. Current tax law sunsets the Section 199A deduction for tax years that start after December 31, 2025. The "Big Beautiful Tax Bill" the house has passed, however, removes this sunset provision from the law.

This is highly personal, and highly customizable. You can either enter into a JV agreement or you can form an LLC with an operating agreement in place. Since it has to be titled to someone, I personally would form an LLC and do an operating agreement that outlines roles, responsibilities, profit sharing, and outlining who and how sale or refinance can be triggered, etc.

Ask off as much as you need to be safe.  If you don't get it, walk away.  There is always another deal.  Don't be emotional, just rational.  Real Estate is a safe, stable investment that makes you money in the long term.  

Sure, happy to help!

Raghavendra,

This is a major red flag. The septic system isn’t built for the extra bedrooms/bathrooms, which could lead to legal and functional issues. The seller’s refusal to update records or expand the system makes it riskier. Check with the county to see if expansion is possible, if not, the extra space may not be legally usable.

If the deal still makes sense after factoring in potential costs, negotiate a discount. Otherwise, walking away is likely the smarter move. Let me know if you need help with financing on a better deal. Best, Drago