LLC logistics as created as a partnership

[Jeff Piscioniere]

Good morning all! Just a few short months ago, my 2 partners and I created an LLC for the purpose purchasing buy and hold rental properties. We closed on our first multi in July. The mortgage is only in one of the partners names because based on credit scores it made the most sense plus we knew we could spread the number of properties we could hold by keeping them separate. We even plan on having our wives involved increasing the number even more. My question is that although we have an LLC and all bills are paid out of a joint account, the mortgage is still only in one of the partner’s name. Are we even accomplishing the asset protection we intended by having an LLC? I hear about quick claiming the mortgage to the LLC but that can be dangerous in that it may be called to be due in full. Any suggestions would be appreciated! We are also discussing on how to file for taxes as this one partner will claim the taxes this year and the pla was to rotate between the 3 families. I look forward to your responses and thank you in advance! Jeff

[Costin I.]

So, @Jeff Piscioniere, wow, what a good start and wow, what a hodge podge potpourri of things! The mortgage is in one person name, and the title is held by who? The joint account is held by? What is the LLC role in all this?

I'm not a lawyer, nor CPA, and you need specialized advice.

But here are some suggestions:

- since you are dealing with partners, you need to have things very clear (what do you think it happens with the multifamily and the joint account if one of the partners hits someone's Lamborghini and crashes into a mansion and/or putting a person into hospital?) structured in terms of partnerships and asset protection. I think each one should have their own LLC partnering into an LLC for these type of endeavors.

You need to read these threads:

https://www.biggerpockets.com/renewsblog/effectively-conduct-joint-venture-agreements-as-a-real-estate-investor/

https://www.biggerpockets.com/forums/48/topics/596231-how-do-i-properly-construct-a-purchase-with-a-partnership

https://www.biggerpockets.com/forums/51/topics/591376-create-an-llc-for-first-partnership-best-way-to-do-so

https://www.biggerpockets.com/forums/51/topics/526244-taking-on-partner-s-and-limiting-our-liabilites

- one base idea of asset protection (and LLC) is to separate your personal affairs from the real estate investing. And also to separate the assets from activities. So, usually you establish an asset holding entity (the LLC or a land trust with an LLC as beneficiary) - this just holds title to the asset. And then you have an Operations LLC - a shell LLC that is the public facing entity, doing all the interactions with tenants, contractors, leasing, hiring, management, etc. with no assets and very little funds beyond whats required for proper capitalization and operations.

That's the basic idea, but things get complicated from there due to the partnership, financing, commingling, etc - which is your current situation. As I mentioned, you need specialized advice to untangle this - talk with @Scott Smith.