Local/Long Distance Partnership Responsibilities

[Mike Bonadies]

Hi Guys! My Partner and I are forming a real estate investing company and we wanted to see how other partnerships split our responsibilities - especially ones where one partner was local and the other was long distance.

A little bit about us:
We are two professionals starting an LLC in South Jersey and where we plan on specializing in buy and hold properties in blue collar/upper-middle class neighborhoods. One of us lives in South Jersey where we plan to operate and the other lives in Baltimore. Here's some of our talents/skills:

Baltimore Guy:

• The more financially savoy of us.
• Better salesmen/net-worker
• Larger base salary
• Better marketer
• Operationally minded

South Jersey Guy:

• Much more of a firm/no BS attitude
• Can do minor repairs-handyman jobs
• Better at organization
• Better credit score
• Has their PHd (more credible?)

How would you split out the responsibilities of a real estate investing company with someone being local and someone being long distance? I've heard and spoke to a few people that have had a similar relationship but wanted to get more opinions as we are just jumping into this for the first time.

Thanks for the help!

Best,

Mike

[Chris K.]

@Mike Bonadies

A few thoughts: 

• Please hire a competent attorney to draft an operating agreement if you are going to do a 50/50 LLC. I'm currently dealing with several corporate disputes that involve 50/50 LLC or otherwise an LLC with an even number of members. Have the attorney include some kind of tie-breaking mechanism. I can't even describe the amount of damage that a deadlock situation can cause in an LLC.

• Also make sure to include something in writing about when the members can sell the properties. Also include some kind of buyout provision and set some kind of reasonable method for valuation. Given that this is a real-estate holding LLC, you can basically structure it around the valuation of the real-estate.

• There are many more issues to deal with when forming a 50/50 LLC. Again, have a competent attorney draft the Operating Agreement. Can't stress this enough.

• In terms of operations, this is something that you and your partner should decide upon. Sorry if that's not helpful but there is no single solution for these issues. Do note that most of the issues you mentioned are stuff that you and your friend need to systematize. Once you guys do so, neither of you should need to spend inordinate time managing the property. Just avoid the trap of dumping the responsibility of systematizing to each other. Proper systematization is an effort that all members need to participate in. If not, you shouldn't go into business with that person. 

• As a practical matter, I think life is much easier if one of the members act as a manager for the LLC (meaning he or she has the day-to-day authority for most decisions). While I don't always follow my own advice, this manager should receive some kind of compensation. It can be minimal (anywhere from 1 to 5% of the gross rent) or substantial depending on the nature of the deal.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.