Investing with Friends

[Sebastian Harris]

Hello, I have been looking to get into real estate for a while now, but have being struggling to come up with the money I think I would need to get in. Recently in searching the market I came across a rental unit in a 3 unit multi family home. The listing stated that the Owner was willing to do a rent to own deal. I contacted her and after a few days of talking. We struck a ( over the phone, nothing signed yet), it is contingent on us: 1. Viewing the property 2. Getting it appraised 3. Getting it inspected 4. Seeing documents of current leases and expenses. Without confirming the numbers, we are told and lead to believe the property cash flows about $200-$300 a month, fully rented. We agreed on a 2.5% Downpayment on what she is looking to sell the house for, financed through her at 6% for 2-3 years then we would have to refinance through a bank. She claims she is selling the property undervalue, which seems to be true, but we would like to confirm that with an appraisal. If all goes well, which seems to be the case, I will be going in on the deal with 2 other friends. Since this is the case, I’m wondering what is the best way to structure it in our part. We plan on investing together for years to come. Would it be best to set up a LLC for this property? Or a real estate company and technically have the company own the property and us own the company? Or put all 3 of our names on the loan for the house? Or is there another better way? I plan on speaking with an account before we do the deal, but just wanted to see if the great members of Bigger Pocket had any advise to offer.

[Omar Khan]

@Sebastian Harris Your operating agreement will outline major responsibilities, profit splits, who does what work and who can exercise control. 

I would recommend talking with a CPA to setup a company and creating separate bank accounts which all partners seed with money (which should be more than the down payment). 

You should get everything in writing to avoid confusion and/or selective amnesia.