Structuring a Real Estate LLC with a Partner in San Diego, CA

[Andrew Erickson]

Hello Bigger Pockets Community,

I'm currently embarking on a real estate development project in San Diego, CA, and I'm looking for some insights on how to best structure my deal. Here's a brief overview of my situation:

• Project Details: I've purchased a single-family home in January and plan to build 6 accessory dwelling units (ADUs) on the property. The total project cost is estimated to be around $2.2M, with the construction of the ADUs costing about $1.3M and the primary home valued at approximately $900K.
• Financing Needs: To fund this project, I need to borrow a significant portion of the capital. Several lenders told me they require me to have a partner with real estate development experience who would own at least 20% of my LLC to qualify for the loan. This partner's experience and my assets and project plan would be the basis for loan approval.
• My Objective: How to structure this partnership in a way that allows me to retain maximum control and profit while providing just enough incentive to the partner to participate. Specifically, I want to ensure that the partner's role is limited to satisfying the lender's experience requirement and does not entail a significant share in decision-making or profits.
• Questions for the Community:
  1. What are the best practices for structuring such a partnership in an LLC, particularly in terms of ownership shares, profit sharing, and decision-making rights?
  2. Are there any specific legal considerations or pitfalls I should be aware of, especially in the context of California real estate law?
  3. What incentives are typically offered to such partners who primarily bring experience to the table?
     
  4. Any insights or experiences on negotiating with a partner under these circumstances would be highly valuable.

I appreciate any guidance or personal experiences you can share as I navigate this crucial phase of my real estate development journey.

Yes, I will be hiring a lawyer to help, but I'd like to think of a few ideas before I meet with the lawyers. 

Thank you in advance for your help!