Using Private Money Correctly With Splitting the Profits

[Jerry Brawner]

We are working to close on our first deal and have a private money lender to fund that deal, friends of the family. We are going to split the profits. I want to make sure we do the structure and expectation correctly making sure we protect the relationship. Looking for any advice the community has on this. Appreciate your feedback in advance.

[Ryland Taniguchi]

Originally posted by @Lee Nguyen:

@Ryland Taniguchi

What's the strategy for getting the title on a property as an entity? 

Buy the property as one person and then transfer the title over? 

I'm running into trouble on figuring how to use private capital to buy property. 

Depends on what you plan to do with the property and how you plan to finance it.

Are you trying to partner or borrow from private capital? I am assuming here that you are partnering with private capital.

A common structure that I have used in the past is the LLC with the JV as the exhibit A. So in a typical deal done, I would market for the deal, negotiate, analyze, project manage the rehab, and handle the property management of the rental. I get 50%. A partner puts in the downpayment and the credit and they get 50%. For this BRRRR structure, the credit/cash partner would buy in their personal name.

My company is tied to the deal in the JV which has instructions that title will be quit claimed to the LLC after the property was refinanced.

Buy, Rehab, Rent, Refinance and then title moves to the LLC through a quit claim. The refinance is done in the personal name of the credit/cash partner. I own 50% of the LLC and the credit/cash partner owns 50%. When the property title is quit claimed to the LLC, then things like depreciation get split on the K-1.

I am giving the gist of it. In real life, I have the attorney do all this so it is done correctly every time.

This is the structure that I used to do. These days, I have access to larger private funds and so I am trying to keep 100% of the equity myself and not work with credit/cash partners. The Washington State SEC rules are so overregulated (DFI) that I am moving to a straight capital raise in a rule 506 private placement.