What's the simplest way to structure private equity deals legally

[Reda Eldehiry]

I have multiple friends/people in my network interested to be private equity investors/partners in my flipping deals in WA. The agreement is that I will be receiving 20% of profit for managing a deal from purchase to sale. Every partner will then get a percentage out of profit equal to the percentage their investment represents out of the needed funds. If there is a loss, it will be divided according to the same percentages. 

What is the simplest legal way to structure these deals given that every deal will have different partners/investors and the property being purchased for each deal is not defined beforehand?

Whether the answer is an LLC or not, what is the tax, title, profit/loss division and liability implications?
I am a newbie in such matters, so please explain in plain english :)

If you also have a recommendation for a real estate attorney in the Seattle area let me know.

[Ryland Taniguchi]

Originally posted by @Reda Eldehiry:

I have multiple friends/people in my network interested to be private equity investors/partners in my flipping deals in WA. The agreement is that I will be receiving 20% of profit for managing a deal from purchase to sale. Every partner will then get a percentage out of profit equal to the percentage their investment represents out of the needed funds. If there is a loss, it will be divided according to the same percentages. 

What is the simplest legal way to structure these deals given that every deal will have different partners/investors and the property being purchased for each deal is not defined beforehand?

Whether the answer is an LLC or not, what is the tax, title, profit/loss division implications?
I am a newbie in such matters, so please explain in plain english :)

If you also have a recommendation for a real estate attorney in the Seattle area let me know.

 That sounds like a security requiring $50 k to $100 k in legal fees for rule 506 PPM, prospectus, subscription agreement with risks identified, 6-page term sheet, reg D filing. Stay away from doing a security without the right disclosures.

I'm not a lawyer so talk to your lawyer on this opinion of mine. Disclosure: this is not legal advice.  It was taught to me by my attorney and so it as it is. Rather than dividing profit equal to the percentage of investment (which could be considered a general solicitation, here are some alternatives.

1) Fund each property in it's own LLC and each investor brings money on that that LLC for one property.

2) Set-up an LLC through your attorney (don't do this on your own) where you are the managing member at 20% and 4 friends are members who buy in at lets say $10,000 each as members. The members can always loan money to the LLC, let's say $100 k at 7% each. If your attorney says this is not a security, then discuss how this can be done. The members get interest on their loan collateralized by chattel (assignment contracts, houses owned while the LLC is flipping, etc.) and they also get their membership interest in the LLC.

I can't emphasize enough the importance of getting a good lawyer that understands Securities in this type of deal structuring.