A quick question about bringing on investors...

[Paul Cecil]

Hello BiggerPockets!

I've been listening to the podcast all year and lurking the forums for quite some time.  My business partner and I have decided to take the plunge and purchase one or two multifamily properties.  The issue is we don't currently have money to put down for fixed costs and down payments.  

I've been hearing for months (from both YouTubers and BP) that a great way to start off is to take on an investor to put down the down payment and structure the deal as follows:

Investor: 50% equity, 50% mortgage responsibility, pays down payment and fixed costs, does no work

Us: 50% equity (split 25% between my partner and I), 50% mortgage responsibility, finds a deal, manages the property, etc.

We would love to form an LLC and manage the assets this way so that we can limit our personal liability and keep business bookkeeping separate from personal.

I spoke with a lawyer yesterday and he was saying that the only way to accomplish this would be for investors to own shares of the LLC (meaning they own a share of all the properties we own) which is not what I want. Is there a way to structure the deals so that each investor is only investing/owning equity on the properties they specifically invested on? Will this be more expensive than having them purchase shares? I was assuming structuring individual deals would be more time consuming, but how much more?

I want the investor to legally own 50% of the units they helped purchase, not any of the other properties.  If it helps, we live in the Columbus OH area and plan to invest nearby.  

I apologize if this question is poorly worded - I'm still learning.  Thanks for any help!

[Mitch Messer]

Hi @Paul Cecil and welcome to BiggerPockets!

One simple way to achieve your goal is to create a new and distinct LLC for each deal that you do with a money partner. Then, the LLC would be the titleholder for the investment property. For the record, corporations have stock shares that can be bought and sold, while LLCs have members with a pre-defined ownership percentage. If your attorney didn't explain this, then you need to find yourself a more experienced one.

Another way to operate is to make the money partners lienholders on the investment property, while leaving you as the 100% owners.