Help Me Structure Partnership Agreement. Im bringing $15k Cash.

[Preston Patterson]

Hey everybody,

So my father and I are looking to go into a partnership to purchase my first MFR property. I am bringing $15k cash to the deal. My father is bringing $65k cash as a hard money investor. The occupied 2-unit property we are looking at is cash flowing $1800/mo. . After expenses $826/mo. will be left over.

This is how I was planning on making the agreement work:

1. Purchase the property in our Partnership LLC. name with combined funds.

2. Using an LLC bank account, collect the first 9 months of net cashflow for a total balance of $7200 (8%) of FMV (For repairs only)

3. The next 6 months of net cash flow will go directly to my father as a fee for borrowing hard money. ( $5000

4. After 24 mo. Use a HELOC to buy out the remainder of the $65k borrowed from my father +$25K to invest into the next property.

Please tell me if this sounds reasonable. Still have to research if an S-corp is the better idea for tax shielding. I don't want my father to pay income tax on receipt of repayment after HELOC. Have to talk to a tax professional about this still.

[Chris Davidson]

@Preston Patterson seems logical. However on #3 if net cash flow goes to your father what happens if a water heater goes out that month and net cashflow is only $200. Also for months 16-24 what are you doing for the money? It might be easier to make it where in 18 months you pay him 5k for the loan, and in 24 months you pay him in full.

He knows what he is getting and you know what you are paying him. If you pay him 5k in 16 months he probably will be even happier. 

If your Father will be on the deed through being a member of the partnership I would check out the S- corp as I believe distributions have to be paid out in portion to ownership, it might be more tax advantageous but really will need your CPA or EA to help you with this one.