Investing in rental properties with a friend, considering structuring as LLC

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Investing in rental properties with a friend, considering structuring as LLC

Hardik Patel
Member since 2019 · 22 posts · 13 votes

My sister and I are planning to invest in single-family rental properties together over the next decade. We intend to form a 50/50 partnership, likely structured as a two-member LLC. Each property would be owned under the LLC, with annual distribution of profits and losses reported via K-1s.

Has anyone set up a similar structure? We’d appreciate any suggestions or recommendations based on your experience.

Thanks!

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Ghassan Jabali
Member since 2025 · 143 posts · 90 votes
1y

Hello Hardik,

I hope you're doing well. Generally, a 50/50 partnership LLC can work to create business protections therein, but the optimal structure could change depending on what state the property is located in. If you are also concerned about charging order protections and anonymity, you may want to consider having a partnership LLC in a state like Delaware, Nevada, or Wyoming, and then for it to own the in-state LLC--again depending on what state the property is located in.

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.

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    1y

    @Hardik Patel

    hi. no need to partner when you're starting out.  too much complexity, not enough reward.

    can you both just house hack separately?

    good luck

    0Reply
  • Ghassan Jabali
    Member since 2025 · 143 posts · 90 votes
    1y

    Hello Hardik,

    I hope you're doing well. Generally, a 50/50 partnership LLC can work to create business protections therein, but the optimal structure could change depending on what state the property is located in. If you are also concerned about charging order protections and anonymity, you may want to consider having a partnership LLC in a state like Delaware, Nevada, or Wyoming, and then for it to own the in-state LLC--again depending on what state the property is located in.

    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.

    3Reply
  • Hardik Patel
    OP
    Member since 2019 · 22 posts · 13 votes
    1y

    We reside in Texas and plan to purchase two out of state properties in Indiana, additionally we would both would like to benefit from tax benefits.

    For our first two properties she will provide funding, as we scale I will purchase the next two. 

    Would it be a fair statement to state we would not need an LLC and both of us can purchase a house together then create an llc as we grow?

    0Reply
  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    1y

    I'll no longer work with partners as I've been burned badly twice on JVing. That being said, if you do decide to do it, don't draft the Operating Agreement yourself. I know it's an extra expense, but have an attorney represent you to draft it. No one ever goes into a marraige thinking that it will end in divorce, yet half of them do. All things end badly, otherwise they wouldn't end. On my first venture, I simply thought I could do it myself. Unbeknownst to me, the "partner" quietly had their attorney sliding things into the operating agreement and I was none the wiser. I lost everything. Good fences build good neighbors. Have an attorney on your side representing you when you draft it, or don't do it at all. Take it from someone who lost everything by not following the above advice.

    2Reply
  • Becky KlingeleBusiness Member
    Terre Haute, IN · Member since 2017 · 8 posts · 0 votes
    1y

    I would not wait on forming the LLC. It is quick and easy to form one in Indiana.

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  • Savannah Wallace
    Attorney · Las Vegas, NV · Member since 2025 · 69 posts · 91 votes
    1y

    Hello Hardick, 

    Congratulations on this new investment! 

    Setting up an LLC for your rental property is something that I strongly recommend for all of my clients to provide them with asset protection, especially when you're looking at a partnership.

    LLCs can help shield you from personal liability if a tenant were to ever sue as well as offer protection against creditors in case of a personal judgment through charging order protection, when the LLC has been structured appropriately.

    Also, depending on the structure, you can keep your name off the public record as the owner of the property and even as part of the LLC. For my clients, I recommend that they place the properties in an LLC that has been formed in the state where the property is located and have the member of that LLC be a Wyoming LLC. This provides for both anonymity as well as charging order protection.

    While there are inexpensive DIY options out there, I recommend working with a local attorney to help you set up your LLC. I've had the opportunity to review a number of templates from companies, like LegalZoom, and have found that they often lack the necessary detail and thoroughness required for effective business management. Important sections are frequently omitted, which can create challenges in day-to-day operations and long-term planning. Having a well-crafted Operating Agreement is crucial for a partnership. Terms regarding authority, roles, membership transfers, dissolution, etc., should be carefully outlined to mitigate any disputes.

    I recommend working with a local attorney to help craft documents that address all your needs and allow for long-term growth and expansion, or, at the very least, have an attorney review the Operating Agreements you draft on your own or through a DIY company and suggest revisions so that it better suits your needs.



    Note: This information is for educational and informational purposes only and does not constitute legal, tax, or financial advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

    1Reply
  • Ryan RomingerBusiness Member
    Real Estate Broker · Indianapolis, IN · Member since 2018 · 340 posts · 144 votes
    1y

    I've seen few investor pairs who've done exactly what you're describing—two-member LLCs owning multiple single-family rentals. It’s a solid structure for keeping things organized and protecting both of you. Just make sure your operating agreement covers how decisions are made, how capital contributions work, and what happens if one of you wants out down the line. Definitely helps avoid misunderstandings later.

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  • Ryan Coon
    Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 98 votes
    1y

    I second the concerns pointed out by @Doug Smith. Use of an LLC can not only protect your investments from personal liabilities and vice versa, but a well drafted Operating Agreement for the LLC can go a long ways to lay the foundation for your partnership relationship. I've seen too many relationships—whether they be friends, family, or simple business partnerships—fall apart because they decided to partner on a business or investment and did not adequately plan for and anticipate the complexities and difficulties involved in the venture. Joint investments will just about always come with their share of difficulties and anxieties and if you don't plan for how to handle these it is far too easy for the partners to start blaming each other and taking out their frustrations on each other.

    A well drafted LLC Operating Agreement (OA) can plan for and anticipate the difficulties and the unknowns of the joint investment. The OA should cover things like decisions making, how to handle deadlock, how to resolve conflicts, and how to exit the partnership. Drafting of the OA should involve input and agreement by all the parties and should absolutely be drafted, either by an neutral attorney who agrees to provide mutual representation of both parties or by coordination between separate attorneys who are independently representing the respective parties. Yes, this will be an expense at the start of your partnership but the expense often pays huge dividends not only in efficient resolution of disagreement, but also in avoiding unnecessary conflict.

    Lastly, I'll just note that I often hear people excuse not having an LLC with a well drafted OA with something to the effect of "my partner and I have a great relationship, we don't need this". Unfortunately, it is with these "great" relationships that people often have the most to lose and when these relationships turn sour because of a business disagreement, they often sour much worse than other relationships. Thus, it is with these close personally "great" relationships that a well drafted OA often becomes more important, not less.

    1Reply
  • Kerlous TadresBusiness Member
    Realtor · Columbus, OH · Member since 2023 · 1k+ posts · 1k+ votes
    1y

    Setting up a 50/50 partnership with a two-member LLC is a great strategy for real estate investing. Make sure your operating agreement is clear, outlining roles, responsibilities, and decision-making processes, especially for acquisitions, management, and exits. Since the LLC is a pass-through entity, profits, losses, and depreciation will affect your personal taxes, so it's wise to consult a tax pro. Keep in mind that lenders will likely require personal guarantees in the beginning. Clear communication between you and your sister is essential to decide upfront who handles property management, tenant relations, and finances. Lastly, have an exit strategy in place to address potential changes in your goals over time. With this structure, you're setting yourself up for long-term success, just ensure everything is clearly defined from the start.

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  • Hardik Patel
    OP
    Member since 2019 · 22 posts · 13 votes
    1y

    Thank you!

    0Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Hardik Patel Yes, forming a two-member LLC with your sister is a common and smart way to structure a 50/50 real estate partnership. It provides liability protection, simplifies profit-sharing, and allows you to issue K-1s each year for tax reporting.

    Here are a few key recommendations based on investor best practices:

    1. Draft a detailed operating agreement that clearly outlines ownership percentages, capital contributions, responsibilities, voting rights, profit/loss allocation, and exit strategies. This avoids confusion or conflict down the line.
    2. Open a separate LLC bank account for all rental income, expenses, and distributions. This keeps finances clean and audit-ready.
    3. Decide how you’ll handle additional contributions if repairs or upgrades are needed—equal funding, or allow one partner to contribute and adjust ownership or distributions accordingly?
    4. Work with a CPA experienced in real estate partnerships to ensure proper tax treatment and K-1 preparation each year.
    5. If you plan to grow the portfolio, consider how the LLC will acquire future properties (new loans, capital splits) and if any profits will be reinvested.

    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.

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  • Scott Fuller
    Accountant · Atlanta, GA · Member since 2025 · 12 posts · 10 votes
    1y

    I'll second the replies from some of the others above. Setting up an LLC is definitely a good first step. I would definitely work with an attorney to create an operating agreement, as the requirements are different in each state. We have quite a few real estate clients who have multiple partners in their LLC's and that structures works well.

    Keep in mind that an LLC is a legal status and does not directly impact your tax filings. When you set up the legal entity, you then have to decide how you want to be taxed, either as a partnership or as an S Corp. There are different pros and cons for each, and I'd strongly recommend working with a CPA who is experienced in this area and can guide you through the decision and make sure the proper paperwork is filed with the IRS.

    0Reply
  • Josh L.
    USA · Member since 2023 · 145 posts · 84 votes
    1y

    Pretty common approcah but parternship creates the extra step of parternship tax return and you're essentially "married" to the partner. 

    0Reply
  • Jake YuskaitisBusiness Member
    Lender · New Jersey, USA · Member since 2022 · 254 posts · 67 votes
    1y

    wyoming trust

    that wyoming trust owns a wyoming llc

    that wyoming llc owns the domestic llc of state you are operating in

    make the domestic llc 50/50 owned by each of your domestic llcs that still follow the above structure

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