Group of three couples trying to invest in properties under a LLC

[Jeffrey Kpentey]

We are all young adults that either are entering the work force as new graduates or are on our last years of college that are eager and see the importance of owning real estate. As I said in the title we are three couples(not married) and have little capital, so we want to know what would be the best approach on what type of legal work needs to be done and how to get financing in order to make our first deal? Also would fixing and flipping be the best strategy to start with?

[David M.]

@Jeffrey Kpentey

Sounds like you are doing a business venture.  This will "force" you to form a legal entity.  Just be forwarned that this tends to be more expensive, mainly because you won't qualify for residential loans and you will need commercial funding.

First, of course you should be talking to a few professionals, instead of my layman's opinion...

Depending on your lender they may want the property to sit by itself in a LLC. If you had more than one property this means a problem with one property could affect the other.

If you plan for the above, I'd recommend that each couple form a LLC. When you go in on a deal, you create another LLC, let's call it the "property LLC," that will hold Title. Each your LLC's is a member (LLC's have "members" as owners) of the property LLC. The Operating Agreement of the property LLC will have everything spelled out. The advantage of this is just in case you guys do a deal, but only 2 out of the 3 of you want in. Or, maybe its alls three but not split 3 ways... The property LLC allows for customization of every deal (vice forming LLC that hold Title to each property).

Having a multi-member LLC for each pair of you might be a bit overkill, but can be useful if you plan on getting into more complicated structures. Yeah, its one more partnership return to have prepare and submit. But, it does force you to have a central business bank account that all the money will flow. Otherwise, you could skip the individual LLC's and all six of you go in on the property LLC.

One other important question to understand is what sort of investing are you looking to do?  And where?

If you want to chat directly, feel free to send me a direct message and we can arrange a time.  Good luck.