Looking for Insight on Business Structure for a REI Company

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Looking for Insight on Business Structure for a REI Company

Amy Lieu
Member since 2022 · 10 posts · 6 votes

I co-manage a small, family-owned real estate investment company that has four owners. For operational ease, our operating agreement states that I have the ability to be the sole signer on purchases and sales, among other things. However, lenders and some title companies still require that all four owners  fill out the detailed loan application processes and sign all closing documents. Getting the four owners available at the same time or to finish tasks within a certain time frame can be difficult and occasionally causes timeline delays.

I am wondering if there is a way we can create a holding or managing company that can manage this LLC that would allow its manager (me) to purchase/sell properties and apply for loans without needing the involvement or information of the original LLC's owners.

Thanks for reading! I would appreciate any insight the BiggerPockets community has about this.

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Luis Alvarez
Real Estate Consultant · Colorado Springs, CO · Member since 2014 · 86 posts · 64 votes
3y

@Amy Lieu One possibility is to set up a limited (family) partnership (Pship), the current LLC would act as the limited partner and could receive the chunk of the profits/losses but because that LLC (and by extension, its owners) is a Limited Partner, there is no action it could take or sign on behalf of the Pship. A side LLC, acting as the General Partner, could handle all the management and enter into contracts/agreements on behalf of the Pship. Additionally, if it makes sense and a CPA advises, the General Partner (LLC) could be treated as an S-Corp.

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  • Amy Lieu
    OP
    Member since 2022 · 10 posts · 6 votes
    3y

    Text on the operating agreement:

    "The Managers shall have the sole and exclusive right to manage the business and affairs of the LLC in either of their sole discretion without the need for prior consent or approval from any other member or manager of the company except as otherwise provided in this Agreement. The Managers shall have the power and authority to take such action that they deem necessary, appropriate or convenient in connection with the management and conduct of the business and affairs of the LLC, including without limitation the power to:

    (a) Acquire, sell, and convey real or personal property for the LLC.

    (b) Dispose of property, either in the ordinary course of the business or when the Managers determine that such disposition is in the best interests of the LLC.

    (c) Finance the LLC's activities by borrowing money from third parties on such terms and conditions that the Managers are authorized to pledge, mortgage, encumber or grant a security interest in LLC properties as security for the repayment of the loan.

    (d) Employ, retain or otherwise secure the services of professionals or other persons.

    (e) Take any and all other action permitted by law and which is customary or reasonably related to the conduct of the business of the LLC."

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  • Luis Alvarez
    Real Estate Consultant · Colorado Springs, CO · Member since 2014 · 86 posts · 64 votes
    3y

    @Amy Lieu One possibility is to set up a limited (family) partnership (Pship), the current LLC would act as the limited partner and could receive the chunk of the profits/losses but because that LLC (and by extension, its owners) is a Limited Partner, there is no action it could take or sign on behalf of the Pship. A side LLC, acting as the General Partner, could handle all the management and enter into contracts/agreements on behalf of the Pship. Additionally, if it makes sense and a CPA advises, the General Partner (LLC) could be treated as an S-Corp.

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    3y

    Theoretically, you can have anything set up in the operating agreement as long as all the owners agree to it.

    If the sole purpose of creating the other entity is to decrease the amount of signatures, with no other purpose, it might be easier to amend the agreement so only your signatures are required to do the tasks that you want to do.

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  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    Talk to your lawyer on what to change, not BP "experts".

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  • Amy Lieu
    OP
    Member since 2022 · 10 posts · 6 votes
    3y

    @Luis Alvarez Thanks for your reply! If we start another entity to manage our original company and apply for loans on our original company's behalf -- could we get access to the same loans without involving the owners of the original company (credit checks, rent verification, etc.)? I'm not sure about the details on how loan qualification works. Thank you in advance!

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  • Luis Alvarez
    Real Estate Consultant · Colorado Springs, CO · Member since 2014 · 86 posts · 64 votes
    3y

    @Amy Lieu Following the option I mentioned above, yes, a General Partner usually has those powers. But the drafting of the partnership agreement is the crucial component.  

    I also messaged you that even though the language you have in your Op Agreement spells out that one can act alone, these lenders are likely wanting to have all members sign because they are wanting to use the credit/obligations from each as individuals, rather than that of the entity--but that's something to confirm/clarify with the lenders.

    There's also another option of putting together a type of "corp resolution" which reiterates that all members are granting one individual the unilateral power to conduct business and enter the entity into loans.  But again, if the lenders want all individuals to sign for purposes of personal guarantees, then they may not really acknowledge the legal powers granted by you and the other members to the one individual.

    I hope that makes sense!  And for clarity, this is not specific legal advice, just my opinion based on my years spent in private practice estate planning, asset protection, and trust administration for high-net worth clients. 

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