Partnership

[Pete Tam]

I'm planning to invest in real estate with my friend. We are not sure how do we proceed further with loan, rent payment, etc.. I've following questions and need your expert guidance:

1. We would like to get separate loan and make payment for individual loan.
2. How can we distribute the rent we get from the investment property.
3. Should we open LLC? If yes, what are the benefits!
4. Property title transfer on both of us name or LLC is a good option.

If you know some other question/answers too, pls add to my list...

Thanks for your help in advance.

[Jon Holdman]

The agreement will likely be pages and pages and pages. Spend some time talking and making notes and then try to write this into a document and you'll see what I mean.

You've thought about the easy part - splitting the profits. Think about:

- Will the partnership keep some cash in its bank account? (it should, six months rent, minimum, IMHO)
- When will the partnership distribute money? Who decides?
- Who's on the checking account? Are both of you required to sign checks?
- What if you have a major expense and the partnership doesn't have enough money in the checking account? Presumably, then two of you kick in the cash. But what if one of you cannot? If the other person has to kick in more, does that change the capital accounts of each of you? Or, is it a loan from one of you to the other? Or what?
- What if one of you desperately needs money?
- What if one of you wants to be bought out by the other or wants to buy out the other?
- What if one of you wants to sell their interest in the partnership to someone else?
- What if one of you gets married or divorces?
- What if one of you dies?
- What if one of you gets sued, loses, and gets a judgment against the partnership?
- What if the partnership gets sued?
- What if one of you thinks something needs to be done to the property and the other doesn't?
- What if the tenant calls one of you with an emergency and you can't get hold of the other to make a decision?

If you start kicking this around, more and more questions will come to mind. Write this all down. Be sure you agree on every possible situation you can think of. Take the mindset that at some point in the future will be VERY angry with each other and that you will have to refer back to this agreement to settle some issue. Or, that your lawyers will use this document to make a decision for you. I know you think that will never happen. Rest assured that there WILL come a time when you will disagree. The key to resolving that amicably and staying friends is to think it through now and write it down. If you can't discuss this now and agree on what to do, you won't be able to when you're mad.