Family owned business model ideas

[Nicholas Lehman]

I recently bought a fourplex in Anchorage Alaska and have done well enough with the rehab and managing that my parents are now interested in investing in Alaska as well. They are interested in getting something like a smaller commercial property between 6-8 units and putting up the money for the down payment. I have stated that i can help with finding the property, management, maintenance, some rehabs etc. what we are having trouble is pinning down exactly how to word our LLC agreement so that we are all on the same page and no one gets thier feelings hurt. My parents are suggesting something like having shares such that if they put up 95k for a property and i put up 5k then they would have 95% of the votes receive 95% of the cash flow after all bills (and me being paid out 8-10% for property mgnt etc) and i would get 5% with the opportunity for me to reinvest in the property to sort of “buy” shares from my parents to where I could gradually earn more of the cashflow, principal reductions etc. I am working towards the goal of a lifestyle of all passive income or property management type work and i am just wondering if I should be asking for more or if there is any better ways people have come up to structure deals with their families. Thanks.

[Jacques Cyr]

@Nicholas Lehman question for you: is the plan for the original $100K be financed out at some point in the near future? For example, once you've completed the rehab /updates, or increased rents? If so, I would suggest a 50/50 equity split once both parties original investment has been refinanced via commercial loan. Also, from what I've gathered, you may be undervaluing your portion: e.g. the value of your time and efforts for research, inspections, rehab, project management, etc... 

For your LLC, you could simply form the LLC under your name. After which you will then form a partnership between your LLC and your parents, perhaps in a first lien position. Most of the partnerships I've done here in Grand Rapids, MI are based on either a straight debt position of ~10% (usually for smaller deals, and depending on how many we've done together in the past. Lower (~8%) the more we've completed). Or for larger projects, we'll establish a equity position: X% of profits after both parties have recovered their original investments. In your Buy and Hold situation, you could establish the same general structure, especially if the plan is to refinance after project is stabilized. You would be compensated for project and property management (Usually 10%).

Hope this helps. Good luck...