REI Family Partnership

[Tara Rose Iguidbashian]

Hi all,

I am planning on partnering with a family member to buy a multi-family property. We plan to create an LLC and joint checking account. From there, I'm wondering the best way to structure our partnership. We will both contribute financially and I will do the work of finding, analyzing, and brokering the deal. I have a great local property manager who will take care of that part. Does anyone have any best practices they can share about financing strategies or anything else for an investment group?

Thanks!

[Brett Mach]

It may depend on how you structure your LLC together (this would likely be a multi-member partnership...way more complex than a single member, sole-proprietorship LLC, and more taxing headaches, for the record). Is this with one or two family members, or larger group? The more owner-investors, the more headache, which seems like the consensus at the syndicate level too.

Intend for the LLC to be for the single property, then you guys decide ownership percentages and capital contributions to establish and fund the LLC. You can make contributions any time after formation too, but decide ownership percentages as you form articles of org. Maybe be careful about one family member disproportionately funding the LLC, as the IRS may look at it as a de-facto gift and subject it to gift tax (limit $16k per recipient is not taxable, I think, per year...just something to ask CPA if worried).

If you're not ready to LLC-partnership w all contributors, which is complex and long-term, you could treat the "money" partners just as hard money lenders, but they'd get no equity. Maybe they'd give you great terms as a family member, but be careful it's not subject to gift tax. A hybrid to give some equity plus interest on a loan would be to make them LLC partners with ownership percentage, but have them make a loan to the LLC that they are a part of...then your LLC is on the hook for that loan, plus any financing on the property bought. If you're buying cash, then it'd be less moving parts.

Maybe someone w JV experience can tell you about a joint venture...a single contract to share a deal, and you could put both names on the mortgage (or both names on the loan, but probably one person brings money, so they would be the one on the loan). These are usually for short-term deals (flips), but would be good if you don't want to go for the complex, long-term relationship of LLC partnership yet.