RE Partnership Structure

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RE Partnership Structure

Joel O.
Investor · Charlotte, NC · Member since 2017 · 73 posts · 28 votes

This is for those Real Estate attorneys or people who have experience with my question:

My mother-in-law wants to partner with me on my next deal and wants to be a silent money partner in this deal.

She has no plans on touching or looking at the property, she only wants to receive regular distributions in her account for her investment.

She also does not want to appear on any loan, mortgage, or LLCs. 

She wants to be completely invisible essentially.

I've already spoken to a RE attorney and he says this is over his head and doesnt understand the situation, i currently have scheduled meetings with other attorneys, but would love to hear from the infinite wisdom of my fellow BPers.

How would I structure a LLC and distribute either monthly or quarterly to my mother-in-law?

My original idea was to simply create a partnershup LLC with her as my partner.

If i missed anything out let me know so I can provide that info.

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Mitch Messer
Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
6y

Hi @Joel O. It sounds like your MIL just wants to be a private lender and earn a specific return on her invested funds in your deals.

This is a pretty common and easy-to-structure arrangement. If this concept is "over the head" of your current RE attorney, you need yourself a new attorney, and fast!

She doesn't need to be involved in your LLC at all; no more than Well Fargo would be if they were your lender. 

She's going to be your bank. You'll use her funds to acquire (and perhaps rehab) investment properties that you will either buy-and-hold or fix-and-flip, or some other investing strategy. Either way, you'll give her a 1st mortgage on the investment property as security and then sign a promissory note to pay her on an agreed payment schedule.

There are tons of specifics you'll both need to negotiate here, like appraisals, maximum loan-to-value, note terms, etc. That's where a great attorney will be invaluable!

(And, there's also the valid concern of whether you really want to be in business with family. But that's a whole other discussion...)

But, what she's asking for here is not complicated nor difficult to set up.

(And, no, I'm not an attorney nor am I give you legal advice!)

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  • David Swedberg
    Specialist · St Petersburg, FL · Member since 2019 · 14 posts · 5 votes
    6y

    I'm not an attorney, but work for one. The structures we set up own assets in LLC's or trusts which can be set up to protect identities. We use series LLC if more than one property is owned, to simplify organization and reporting. We set up operating LLC's to run operations and pay lease to the asset holding company, and all expenses related to the property that the accountant recommends. Accountants can give good advice on how to do the expenses.

    If you want anonymity, you can set up the attorney as initial trustee to switch when assets are transferred and the filings are done.  This in my layman's language, I am sure a lawyer can explain it better.  There are great podcasts to learn more without the $500/hour.

    0Reply
  • Mitch Messer
    Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    Hi @Joel O. It sounds like your MIL just wants to be a private lender and earn a specific return on her invested funds in your deals.

    This is a pretty common and easy-to-structure arrangement. If this concept is "over the head" of your current RE attorney, you need yourself a new attorney, and fast!

    She doesn't need to be involved in your LLC at all; no more than Well Fargo would be if they were your lender. 

    She's going to be your bank. You'll use her funds to acquire (and perhaps rehab) investment properties that you will either buy-and-hold or fix-and-flip, or some other investing strategy. Either way, you'll give her a 1st mortgage on the investment property as security and then sign a promissory note to pay her on an agreed payment schedule.

    There are tons of specifics you'll both need to negotiate here, like appraisals, maximum loan-to-value, note terms, etc. That's where a great attorney will be invaluable!

    (And, there's also the valid concern of whether you really want to be in business with family. But that's a whole other discussion...)

    But, what she's asking for here is not complicated nor difficult to set up.

    (And, no, I'm not an attorney nor am I give you legal advice!)

    3Reply
  • Joel O.
    OP
    Investor · Charlotte, NC · Member since 2017 · 73 posts · 28 votes
    6y
    Originally posted by @Mitch Messer:

    Hi @Joel O. It sounds like your MIL just wants to be a private lender and earn a specific return on her invested funds in your deals.

    This is a pretty common and easy-to-structure arrangement. If this concept is "over the head" of your current RE attorney, you need yourself a new attorney, and fast!

    She doesn't need to be involved in your LLC at all; no more than Well Fargo would be if they were your lender. 

    She's going to be your bank. You'll use her funds to acquire (and perhaps rehab) investment properties that you will either buy-and-hold or fix-and-flip, or some other investing strategy. Either way, you'll give her a 1st mortgage on the investment property as security and then sign a promissory note to pay her on an agreed payment schedule.

    There are tons of specifics you'll both need to negotiate here, like appraisals, maximum loan-to-value, note terms, etc. That's where a great attorney will be invaluable!

    (And, there's also the valid concern of whether you really want to be in business with family. But that's a whole other discussion...)

    But, what she's asking for here is not complicated nor difficult to set up.

    (And, no, I'm not an attorney nor am I give you legal advice!)

     Thanks for the response, just to clarify she would be giving me enough funds for a down payment rather than enough for an entire purchase. She would like to see how this works out for us first. 

    0Reply
  • Joel O.
    OP
    Investor · Charlotte, NC · Member since 2017 · 73 posts · 28 votes
    6y
    Originally posted by @David Swedberg:

    I'm not an attorney, but work for one. The structures we set up own assets in LLC's or trusts which can be set up to protect identities. We use series LLC if more than one property is owned, to simplify organization and reporting. We set up operating LLC's to run operations and pay lease to the asset holding company, and all expenses related to the property that the accountant recommends. Accountants can give good advice on how to do the expenses.

    If you want anonymity, you can set up the attorney as initial trustee to switch when assets are transferred and the filings are done.  This in my layman's language, I am sure a lawyer can explain it better.  There are great podcasts to learn more without the $500/hour.

     Personally I am not too focused on the anonymity portion, would like to just focus on acquiring properties and all that other stuff I will handle in the future.

    0Reply
  • Bob Floss II
    Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes
    6y

    @Joel O. Have her do a promissory note with personal guarantee

    1Reply
  • Joel O.
    OP
    Investor · Charlotte, NC · Member since 2017 · 73 posts · 28 votes
    6y
    Originally posted by @Bob Floss II:

    @Joel O. Have her do a promissory note with personal guarantee

     Do you mind elaborating a bit on this method?

    0Reply
  • John Malahay
    SFR Investor · Lakewood, CA · Member since 2013 · 66 posts · 16 votes
    6y

    How about setting her up with a self-directed IRA. That way your partner will be her self-directed IRA account which is its own entity & then pay your distribution to the SD-IRA account. -

    0Reply
  • Anthony Dadlani
    Investor · New York City, NY · Member since 2013 · 1k+ posts · 269 votes
    6y

    @Joel O.

    setup a profit sharing agreement specific to the property she is investing in. 

    Best of luck in all your endeavors.  

    0Reply
  • Joel O.
    OP
    Investor · Charlotte, NC · Member since 2017 · 73 posts · 28 votes
    6y
    Originally posted by @John Malahay:

    How about setting her up with a self-directed IRA. That way your partner will be her self-directed IRA account which is its own entity & then pay your distribution to the SD-IRA account. -

    This is interesting, haven't thought about this. WIll look more into this approach.

    0Reply
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