Limited Partnership deal structure questions

[Brandon Hicks]

So, I have a fair amount of experience investing in small multi-unit properties. I currently own a 5 unit, 1 triplex, 8 duplexes, 4 houses a 2 unit office building and I'm closing on a 12 unit apartment complex this week (turnaround deal). I buy with mostly no money down land contracts and then refi with a local bank. I currently have 9 properties with my bank and the 12 unit will put me at 7 currently on land contracts. I mention all this to say that I have experience and a track record of convincing sellers to work with me even with no money down.

Moving forward I want to focus on bigger deals. Sure there are still a few duplexes in my town that I'd like to own but it makes sense to me to go after bigger deals. Through targeted direct mail I am hoping to locate something around 20-60 units that is need of a turnaround.

Even if I am able to convince  a seller to hold all the financing I may want to bring in some partner(s) capital to be able to do the turn around faster and reach the refi or sell point quicker.

Let's say I am able to find a seller that was willing to sell on land contract and accept a $50k blanket note secured by the equity in some of my current bank-financed properties and like $10k in cash. Is it feasible to set up a limited partnership and raise $50k from the partner? I would keep 50% of the deal and 50% would be the partners. Just making up numbers. Whatever I wanted to raise in cash I would offer the seller the same amount in the form of a note on my stuff to keep the deal at 50/50 between me and the partners.

The plan would be to do a cash-out refi after forcing the value up on the property and then either hold it or sell it.  

I will be discussing limited partnerships with my attorney once I get my 12 unit deal mostly rehabbed. I'm just bouncing ideas around in my head now. Ideally I wouldn't be able to find a bigger deal that I could structure like all these little ones Ive done and avoid giving half my deal up.

I'm a full-time investor/painter.  I would probably hire 3rd party management but I would act as my own general contractor and I have a few people that would work alongside me in doing the rehabs.

[Bill Exeter]

You also need to analyze how you are going to structure the transaction from a tax perspective.  If you intent to sell the current property and then "cash out" and pay the taxes, there is no real planning needed.  However, if you intend to structure 1031 Exchange into the new investment property, there could be some significant issues with some of the ideas discussed above. 

Your current ownership is an LLC, which sounds like it is a single member LLC (i.e., a disregarded entity) for tax purposes. This means that it is treated as if it is owned directly by you for tax purposes. If you acquire your new investment property in a LP, LLP or multiple member LLC, then you have effectively acquired the new property in another taxpaying entity, which will not qualify for your 1031 Exchange. So, tax planning may be in order here. I would bring this issue up with your attorney as well.