LLC Structure Before First Flip

[Jesse Anderson]

Good morning! I was reading through several posts and thought it best to find expert advice in regards to LLC structure and taking on investors for flipping projects. I am just starting out in Jacksonville, FL and hoping to pick the brain of someone with far more expertise than I. If you have a moment I'd greatly appreciate your advice and insight.

My wife and I set up an LLC to purchase foreclosure properties around the Jacksonville area. We are trying to do flips on our own, but also potentially take on projects with a friend down here. Structurally they have come up with the idea that we use our LLC, she creates an LLC and then we contribute funds from those LLCs to a joint LLC to purchase properties and fund the renovations.

To me, it seems like a better scenario to have her friend as an investor a write a note with her commitment (50% of renovation costs) and her payoff (50% of profits, while we take 50% plus the commissions since I'm a Realtor). What is your advice on a legal and ethical arrangement that's best for all parties? Thank you for time and help!

[Christopher Phillips]

@Jesse Anderson

Your friend's structure suggestion is the better way to do it. Not the only suggestion, but the better way. One way would be for your friend to join your current LLC, but that could get messy if you or your friend decide to stop working together, especially if you guys bail mid project due to a disagreement.

Best way to protect yourselves is to keep it separate with individual LLCs that invest into a JV LLC that can be dissolved if needed.