Need advise on Single Project Joint Venture

[Robert Sorrels]

I won my first REI property at auction, and will close in a few weeks. The property is in my hometown in Oregon and I live in Southern Ca. The Property needs some extensive work done including foundation and roof. I used savings and a heloc to purchase. Ive identified a friend from Junior High/ High School who runs his own construction company in town, and has plenty of experience to complete this project. I have about 40,000 (more) to put into it. and he has about the same. We have estimated the rehab at around 75k.

I borrowed a Single Project Joint Venture contract and reworded some things to fit our 50/50 partnership. I will have final say for design and final net profit split. Any Interest we pay on loans we take out will be paid back before split

What else should I have set in place? I am concerned with the tax implications and want to make sure it is fair as to what we recieve at the end. Do I just 1099 him for his share of the profit? what is a 1099 anyway, and how do I do that? Can we shield the profit by opening a C Corp with the profit so we can continue to flip? 1031 exchange?

Thanks in advance for any thoughts..

Rob

[Bill Exeter]

Hi @Robert Sorrels,

Properties acquired with the intent to buy, rehab and and sell or "flip" do not qualify for 1031 Exchange treatment because the properties were acquired with the intent to hold for sale and not hold for rental, investment or business use. They would qualify for 1031 Exchange treatment if the intent was to buy, rehab and hold versus sell.

There are numerous ways to structure the relationship including the use of an entity such as a limited liability company or partnership or corporation. The income tax consequences very between the structures.

I would strongly recommend that you sit down with a really good tax advisor that understands real estate and these types of relationships. @Steven Hamilton II or @Brandon Hall might be able to jump in here as well.