Legal Vehicles for Investor Partnerships

[Michael Liddicoat]

Hello fellow BP members!  Please point me in the right direction to help the investors I work with.

Washington state is in a housing boom.  I've got investors looking for multi-family from all over the state looking at Central Washington because their local markets are too hot and deals are hard to come by.  The market here is not much better for existing multi-family.  However, we have land that can be developed and our vacancy rate is between 1 and 2 percent in this county.  Property management companies haven't been able to find a ceiling on rental rates.  Existing single family portfolios are being sold to residential buyers and forcing tenants into a shrinking pool for rental housing.  Several projects have been completed within the last two years for multi-family units but this is still no where near close to covering the demand.  No single investor I work with has the capital to fund a project to develop new multi-family, but several are open to the idea of partnerships.  

Here's the big question:  What legal vehicles exist so that these investors can partner together on a new development while those that want to hold onto and manage the properties can seperate easily from those that want a return on the development?  Maybe this isn't even the right question.  Please let me know if there is a better way to think of this problem if I'm not on the right track.

[David Benton]

One simple way of putting this together is through an LLC or multiple LLCs. In my state there can be 16 parties in the LLC but this varies state to state. Ask your attorney for the max # in your state.

Personally I form the LLCs myself but if you're new to this have your attorney set everything up. I would always have an attorney review documents regardless. You would also draft an Operating Agreement which spells everything out as far as the contributions of each party and ownership. You can also have multiple LLCs within an LLC so parties can split more easily. You just need to map this out and it will make sense.

Another way of doing this is through LLPs. You can also have LLCs in the LLPs...

LLC

EIN# for the LLC

Bank Account

The next step is determining how funds are managed along with checks and balances.