Best way to setup a 50/50 real estate partnership?

Question

Hello BP community,

I'm in the process of setting up a partnership with another real estate investor. We're planning on doing everything 50/50 where we split the profits and expenses. However, I'm a bit confused on how to structure this partnership.

I've been reading online that an LLC should be used. However, the thing is we are looking to take advantage of Fannie Mac/Freddie Mac interest rates because of how low they are. I've read online that getting financing with an LLC is very difficult. So how do my partner and I make this partnership official and be able to take advantage of low interest rates and qualify for financing?

Initially, we were planning on closing the property in my partner's name because he already has his pre-approval letter.

Should we set up an LLC? Or is it fine to just draft a partnership agreement and have an attorney look at it? Or should we do both?

I've read another BP post where someone makes a separate JV agreement for each property they close on. Is this the better option? I'd love your guys recommendations on what has worked best for you.

Nate Sanow · Answer

@Jimmy Lieu

If you don’t mind slightly higher interest rates look into non Qm or no-doc loans/ lenders. A lot less red tape than the traditional lenders.

Colin Fleming · Answer

For Freddie and Fannie property has to be owned personally. To clarify, my suggestion was to own these personally with joint ownership (not under LLC).

Transferring ownership to LLC later is a common strategy, but double-check with your lender to make sure it won't technically break any agreements in your note and mortgage.

Jimmy Lieu · Answer

But I've heard that getting financing (with fannie mae/freddie mac) is extremely difficult with an LLC. I've had someone suggest to me that I should first close the property and then place the property into the partnership LLC afterwards. Is that what you would recommend?

Colin Fleming · Answer

Hi Jimmy, I have been a commercial lender for the past 26 years and the LLC structure is the most common I have seen with real estate investors. You definitely want a competent real estate attorney to draft your Operating Agreement. I have seen many partnerships end poorly because they did not plan for all partner exits. All income and expenses are run through your LLC and any excess cash can be distributed to the members or reinvested etc. Your Operating Agreement should cover this too.

If you want fixed-rate financing you could take ownership of each property jointly as individuals. Check with your attorney to see if the operation of these properties could be somehow be included under your LLC.

Good luck to you!

If you want fixed-rate financing you could take ownership of each property jointly as individuals. Check with your attorney to see if the operation of these properties could be somehow be included under your LLC.

Good luck to you!

Jimmy Lieu · Answer

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Best way to setup a 50/50 real estate partnership?

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