Co-buying with Parents that live in MD how to setup LLC

[Teri Skrab]

Hello BP!

Our parents recently sold their condo in SC but did not do a 1031 exchange, as they didn't understand it as they are older. And didn't reach out. but, they now want to put the money into another property. So they approached us as we have been working towards getting into STR's. We found a house in the Poconos and actually it just went under contract yesterday. Things moved a little more quickly then expected.

We would like to set it up under an LLC before we go to closing which will be mid April. This is a cash purchase. Our parents are putting in the majority of the funding and we are covering about $10,000+ closing costs. We are located in PA where the property is. Our parents are in MD. Are there any major flags or concerns how to properly set up the LLC. The contract origonally was signed under our parents names and did not include ours yet. We will be fully managing the property ourselves for our parents. So ownership, they are mostly funding we are funding a lil + sweat equity. Thinking about structuring the LLC to pay us for the managment. But would it be an issue if we are on the LLC also as owners/members? Is it an issue to have members from two states. To get paid, would it be ok as long as it is structured as we are Managers in the LLC. And can take a paycheck. Or does this have any conflict of interest?

We are excited, as this will be our first STR, but now are heads are spinning as it wasn't fully thoughtout, before making the offer. And now we have limited time to set up LLC & banking before going to closing.

Any thoughts or suggestions is greatly appreciated!

Thanks so much!

[Dave Foster]

@Teri Skrab, You won't have any problems accomplishing what you want.  Your operating agreement will need to spell out rights/responsibilities/compensation etc.  A good attorney would be worth an hour or two to craft it.

Once that LLC is on title to the property it is now going to be the tax payer for the property because it will file it's own tax return and report the activity of the property. You and your parents will get K1 statements as members of the LLC.

This means that when the time comes to sell this time the LLC will be exchanger for the property. It will sell and perform the 1031. Which should be a comfort to your folks since you can manage through that process also.