Posted by tony on October 16, 2003 at 21:17:18:
Be careful that you are not violating any securites laws. You don’t want to put yourself in a position where you are considered a dealer without the proper licensing.
Syndication or Partnership - Posted by Joseph
Posted by Joseph on October 04, 2003 at 15:48:34:
Hello,
I’ve got a group of 5 people who want to pool their money and invest in NYC real estate.
I will be doing all the work – identifying and analyzing properties, negotiating and purchasing, developing, managing, renovating and leasing. The work is not the problem.
The question is: How best to create the group? Using a syndicate? Limited partnership?
Besides the legal structure, how do I present the setup to them? That is, what is the financial and accountability structure?
Thank you,
Joseph
Re: Syndication or Partnership - Posted by ray@lcorn
Posted by ray@lcorn on October 07, 2003 at 10:50:19:
Joseph,
As a matter of terminology, “syndication” is any structure in which equity and/or debt is parceled out among various participants. An LP is a syndicate of sorts, as is an LLC, as the term is used in real estate. A corporation can have elements of a syndicate, but is generally not lumped into the same basket.
That said, the vehicle of choice nowadays for what you propose is a Limited Liability Company (LLC). They are fairly simple to set up and maintain; they are pass-through entities for tax purposes, meaning the income or loss passes directly to the members; and they offer the same liability protection as a more complicated LP or corporation. For more information on how to set up an LLC, check out Bill Bronchick’s material on the Legal Forum here at CRE Online.
As to how you set up the accounts to share profits or losses, that is entirely negotiable. There is no “standard” set up, though I’ve often seen deals where an equity partner splits 50/50 with a managing partner, but I’ve also seen 33/33/33 splits, 60/40, 70/30 and all manner in between. It depends on the nature of the deal, and comes down to whatever the parties can agree to, seems equitable, and is legal and permissible taxwise. An experienced real estate attorney will have standard LLC agreements that can be modified to your situation.
One caveat: The LLC should have a different attorney than the one who you use for personal advice. There is a definite conflict of interest in the LLC attorney advising any member individually.
When you get to the point of setting up the books and want to do it the right way, check out John Hyre’s bookkeeping material, also from the Legal Forum here at CRE Online.
ray