Limited Partnership Syndication or LLC for Multiple SFR Rentals

[Ryan Walker]

I want to preface this discussion by saying that I will absolutely be contacting a lawyer before preceding, and would like this discussion to help me limit the number of hours I will eventually be charged by such lawyer.

I am considering creating an entity to purchase a hand full (7-10) SFRs to buy and rent.  I have spent a few years working at a Fund so I have access to capital through many accredited investors whom I have maintained relationships with.   I am considering going down 2 different paths and would like any advice on which one may work better for me,  why one will not work, or something I haven't yet considered.

A few things about my deals:

1.) Absolute main concern is to limit the liability of other investors.  Nothing more than capital contributed is acceptable.

2.) These purchases require leverage, mortgages will be needed.  20-25% down.

3.) I will contribute 10% of capital ($50k), investors 90% (450k).  All Capital Contributed will get preferred return (15%) until repaid then profits will split 50/50.  

4.) Homes will be in Colorado in the $200-300k range.  

5.) Investors will reside in Multiple States (CO, TX, MN, TN)

This leads me to the options I am considering:

1.) Create a Limited Partnership Syndicate.  

I prefer this structure where I act as the GP and the LP's are all passive. However, I understand that this structure will have a relatively high cost to create and to file Regulation D (505 or 506??). I am not sure that the cost will be worth it for a deal this small. Also, I almost prefer each SFR to be in its own entity so that one property doesn't bring the whole portfolio down.

2.) Create a Unique LLC for each individual Property (Series LLC??).

I like that this structure could separate each property, but I am worried that this structure wont allow for the complete protection of my investors as I understand that most likely each members name will have to be on the note.  I am also worried that in order for this method to also not have to file the Reg D that the investors must have some type of authority/decision making within the entity.

The numbers work for my investors, I am just trying to figure out the best way to go about this.  Any input is greatly appreciated.