Working with Partners on an Owner-Occupied Property

[Ian Jimeno]

Hi BP'ers,

My wife and I are looking for our next house hack in Denver, with which we are very familiar. As we continue our investing, our capital is tied up in several assets, so we are working with capital partners (family) to assist with the DP and closing costs on the deal. My wife and I will be finding, analyzing, and managing the deal instead of providing capital.

We're looking to operating the single family home as a short term rental by finding a residence that we can separate as two units (i.e. mainfloor and basement, mother in law suite). After running some numbers, we're able to distribute 10% CoC for their ~$25,000 capital investment per couple ($50,000 total). This only works if we can secure an owner occupied loan, 5% Conventional, at around 3.75% (conservatively speaking, yes?) interest.

We want to set up a proper partnership among us three couples - operating agreement, structure of the business, etc. We want to eliminate all emotion in the deal and still come home to each other's company knowing no emotion is involved with the decisions. 

After talking with a real estate attorney here in Denver, she was recommending we set up one Wyoming LLC for each party (one party = one couple) and have a partnership agreement tying in all three LLCs developed. I did not confirm why we should choose Wyoming other than no state income tax on LLCs, sales tax is low, and WY has very minimal reporting obligations and limited LLC fees.

My question to y'all: How do we develop a solid partnership agreement for our three parties? Do you think it's right to have separate LLCs each and then set up an agreement, or do you think there should be one LLC for all three parties, or something else? And should it be out of state (not in CO)?

All of the partners and myself have been going over the Joint Venture Basics - How To Structure the Agreement PDF, which has been tremendous help to answer difficult questions or questions we haven't thought about yet. What say you, RE Attorneys??

Thank you kindly!

Ian