How to structure Partnership RE Company?

Question

Please forgive my ignorance!

One of my good buddies and I have been in the works to start a RE company (buy and holds). We are planning on sitting with an attorney to write up an operating agreement. However, the question still persists on the finance and legal side of things. If we do multiple properties, do we write up a new operating agreements/exit strategies for each one? Fund new properties “half and half”, and just hold the property in one of our names? Should we just cover our assets with umbrella insurances? LLC? I also know it’s not easy to move a property we personally buy into an LLC. Should we fund an LLC buy through it?

If it was just me, I know how to start and the steps to take. But when another person joins the mix, I don’t have the same confidence. In fact I have nearly 0.

TL;DR  How have you structured long term partnerships? For both, The funding/finance side of a partnership, and the legal/liability side of a partnership.

Jeff Binkley · Answer

@AJ H.

Thank you for taking your time to respond. This is exactly the help I was looking for! Have a blessed day and stay safe.

Aaron W. · Answer

@Jeff Binkley For structure, my partner and I created a parent LLC owned equally amongst the two of us. Then we opened an LLC in each market we buy properties.  The subsidiary LLCs own the properties and the parent LLC owns the subsidiaries.

For funding, it is equal in our partnership. We each put in the equal amount of capital to start the LLC. If you can't do it this way, then you and your partner should discuss how the partnership is to be split. If one partner brings in more funds, then does that equal more equity or does the partner who brings in less capital have to put in more sweat equity?

There's no one-size-fits-all approach to a partnership. Whatever each partner is comfortable and happy with is the right way. Definitely make sure it is all documented and legal by using an attorney.

Best of luck!