Multiple partners combining to make cash offer on flip

[Rob Pasche]

Like the title says, myself and 4 others are combining money to purchase a house and rehab with straight cash. We will all be contributing unequal amounts but since I'm doing all the work, they've agreed I will get a larger percentage of profit than my contribution percentage.

This should be an LLC with written agreements I understand, but how can I have the funds ready to buy a house with cash before knowing what the house is going to cost to purchase and rehab? I guess I'm confused by the order that things occur. Is this the correct course of action?

1. Create LLC

2. Create Bank Account under LLC

3. Everyone transfers their investments into LLC Bank account

4. Find house to flip

5. Make cash offer on house?

I feel like I'd rather wait until I find a house before pooling funds bc it could take a couple months and I'd hate for everyone's money to be sitting there not being utilized.

Thanks guys, I hate red tape and just want to get to the deals!

Rob

[Jon Holdman]

Yep, that's how I'd do it. If you're going to need the money at some point its not as if people can invest it somewhere else. You'll need it fairly soon once you have an accepted offer. Cash offers require the offers to be written in the (in your case) LLC's name and you will need to show a bank statement with the cash ready to go.

Spend some serious time writing up the operating agreement. Consider all possibilities: need more money, end result is a loss, someone dies, someone divorces, someone desperately needs cash, etc. etc., etc. If this isn't a half dozen or more pages and you've not spent hours discussing and writing it up you've not put in enough thought. Iron out how things will work now, while you're still friends. If you can't agree now, you won't be able to agree when things go go south.

Document the contributions and your extra share in detail. You'll need that info for the LLC's tax returns.