A good friend and I are creating a real estate partnership to purchase buy and hold rental properties over an extended period of time. While we both have our own capital, we decided that we could buy more properties faster if we partner together. Here are my questions to the forum:
Based on my above description, should we even create a partnership?
If so, what are the best practices as far as how to legally create a partnership?
When it comes to purchasing properties through the partnership, what is the best practice?
Can anyone refer me to any resources that would be helpful for this?
Best way to lose good friend is get him involved n a deal that goes bad.
Otherwise…SIT DOWN, PUT IN WRITING each and EVERYTHING you want or expect out of the partnership. !!!ABSOLUTELY EVERYTHING !!!
Sit down with the proposed partner and have him read off WHAT HIS LIST ENTAILS.
Work out ALL the details…
Then and ONLY then if you are in TOTAL agreement…have a good contract lawyer do a partnersihip agreement that you both ABSOLUTELY agree on and then , READ it at least THREE times. wait thirty days and perhaps start.
You can join financial forces with your friend but I would suggest avoiding the General Partnership structure altogether.
In a General Partnership, both you and your partner are individually and severally liable for any debts incurred by the other. Meaning that you are both personally liable for any debts, liens, and judgments of the other partner. There is zero protection against any liability claims that may arise when you are dealing with real estate.
And don’t count on your insurance stepping up to defend you in the event of a lawsuit. Policies that are worth their salt are very costly - if you can get one - and are becoming a thing of the past.
The preferred way to invest in real estate with partners is through a Limited Liability Company (LLC) with a strong, well-written Operating Agreement.
Each member (not partner) holds a percentage of the LLC receiving - generally but not necessarily - the corresponding % of income and expenses.
So if you own 50% of the LLC, you would get 50% of the income and 50% of the expenses via a K-1 at the end of the year.
The smartest way to protect your real estate is to title each property into a Land Trust with you or your partner as the Trustee and your LLC as the beneficiary.
If you love privacy and want to give most attorneys a real headache, create a second LLC with one being the Trustee and the second the Beneficiary of the Land Trust.
Alexander Burnett @theRealMentor
IG - LinkedIn - FB