Buy-and-Hold Partnership Structuring

[Matt Souza]

Hey BP!

I am a new real estate investor about to close on my first rental property in Metro Detroit! I also have a couple other deals in the pipeline, so I want to make sure I have the partnership structure that will benefit my partner and I the most.

My plan is to join partners with my brother and start a real estate investment vehicle that buy-and-holds SFHs and multifamily properties. We are starting with SFHs just to get a few deals under out belts, create processes, and learn more about REI.

Our problem is we are not sure how to structure our partnership that will give us the most benefit. An LLC would be great for liability protection, separating our personal finances, and for easily tracking equity. The downside is we would miss out on leveraging better loan terms through conventional financing (as opposed to commercial). If we each start to put properties in our own individual names to capture the conventional financing benefits, then equity and profit sharing starts to get a little murky.

Does anyone have experience with this type of partnership? Any advice you could offer someone new to the REI world? Any feedback would be greatly appreciated.

Thanks!

[Dave Foster]

@Matt Souza, theres an additional advantage to holding properties as tenants in common from the strategic perspective of the 1031. If the two of you form an LLC and contribute property into the LLC then it becomes the tax payer and when it comes time to sell and 1031 the LLC will have to sell and buy. So the members are stuck together.

If you own as tenants in common with a master operating agreement then you each own a% of each property.  When you sell you can take your portion as cash and your partner can 1031 or vice versa or both of you can stay together and 1031 forward.  This type of arrangement provides the most flexibility when it comes to the sale.