Partnerships pros and cons...?

Question

I struggle with partnerships, and perhaps writing this post I may be answering my own question. Driving yesterday, I began thinking how do people partner with other investors?

Say I partner with 3 investors on a 1 million dollar property with 30 units. Clearly the contracts are air tight to ensure conditions and so forth are set and expectations are met upfront. However, what if, investor #3 wants to sell? and #1 do not...or of the 30 units, 7 are vacant who carries the cost of the vacant units....how is that squared away?

I intend on partnering at some point as I scale up...,but I'm always cautious. Unless the agreement between the partners is we are holding for 7 years... I don't know..again, I may be answering my own question...as I'm typing this.

Perhaps the conditions of the partnership everything is detailed out...no one can back out, or how is the vacancy going to be administered, how are cap expenditures going to be handled etc...

I just answered my question...smh

Bryan O. · Answer

@Moises Benitez glad to hear you could answer your questions ;)

You are right, everything gets spelled out in the OA for the LLC, including if someone wants out. In a group deal of mine, we decided that if someone wants out and we can all agree on the value, then that is value used to calculate what their portion is based on equity. If the remaining members can buy it out, then they are able to do so. If not, the selling member can find someone else to buy them out, but the newcomer does not get a vote until the original members agree to allow the vote. That allows them in and allows them out, but in such a way that the original members are not screwed. It's the leaving party's job to secure their exit without damaging the company.

As you said, make sure you document roles and responsibilities of everyone, if property management is outsourced, insourced, who makes decisions, blah, blah, blah. Everything means everything! To make it more fun, you don't have to lay out specific xx% for capex, xx% for maintenance, you can put in the OA that it is a certain role's job to do financial planning, then you can have a meeting and put it into minutes and referendum. It doesn't necessarily have to be hard-coded into the OA. That way you can change it down the road without changing the OA.

Partnerships pros and cons...?

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