How to Give away Equity/Depreciation to Private Investor

[Jonathan Bonck]

Hey BP!

I am wondering how you give Depreciation and Equity away in a Deal. I have a Private Lender who will lend enough for Purchase Price and Rehab of a SFH. The situation is that I will be able to keep all the Cash Flow from the deal. I will be able to keep the Found Equity. But He wants the Forced Appreciation/Equity and he wants all the Depreciation so he can write it off on his taxes. This works out great because it will allow me to acquire another buy and hold asset with exceptional cash flow without any of mine own money. I have heard of this strategy using private investors but need more help understanding the paperwork and actual process of giving the private investor the Forced Equity and/or Depreciation.

Thanks for your help! 

[Jonathan Twombly]

Jonathan,

You're getting into complicated ground here, but that does not mean it cannot be done.  In a partnership, you are pretty much permitted to divide up gains and losses in any way that you want.  If you don't specify, then gains and losses are divided up pro rata according to your percentage of ownership.  However, you are free to structure the deal in any fashion you want.

However, this is absolutely the kind of thing that you will need both a lawyer and an accountant to advise you on.  This is way too complex for an off-the-shelf/online partnership agreement.  And if your investor is truly passive then you might also find yourself in the position of issuing a security, and you will need a securities lawyer as well, to make sure that you are on the right side of the SEC.  Find yourself a good local corporate/securities lawyer and talk through your idea.  He or she will have a lot of good advice on how to structure it.

I'm actually a lawyer myself, with 12 years of practice on 9-figure and 10-figure cases, so I consider myself pretty legally sophisticated.  But my area of speciality was not corporate structuring or securities law.  So, in all my deals, I hire a specialist to make sure these things are handled correctly. It's an area that can really get you into big trouble if it's not done right, so I leave it to a lawyer -- the right kind of lawyer, which I am not.