Apt Building Partnership

[Mike Bratsky]

My friend is a real estate developer who has successfully bought, renovated and sold/rented out a few small apartment buildings in the area (I live in the Bay Area so there are plenty of 4-8 unit buildings).  We are talking about doing a deal together.  I have a question about how to properly structure it.  We are planning to finance the deal so you can think of the bank as being another party in this transaction.

My question for the community is the following:  How do you guys usually structure these kinds of deals?  I see a few high level ways of doing it.

Scenario #1:

- Both he and I co-sign on a loan for the building with $500K each in cash towards downpayment.

- We contribute the asset to a joint LLC that we create

Scenario #2:

- He takes out a loan and buys the building for his own LLC.

- He then sells me a portion of the LLC for $500K.

I see some pros and cons to both scenarios, but I mainly want to make sure that I follow the established process. It seems like in scenario #2 if things go sideways and the LLC is bankrupt I don't really have my name on the building or any collateral. Do people generally do scenario #1? Is there a different scenario that people usually go for?

Obviously in our case he brings the experience and will get most of the profits - I am a 'Limited Partner' that just helps with financing, but I also want to make sure that I have the rights to the building.

Thanks!