50/50 Partnership Structure from top to bottom

[Ryan Luby]

Looking for anyone to share experiences based on how they set-up and run their own partnership business.

I know how I would like the business to run, but I of course get confused with the legal & accounting implications of my decisions. 

** I am in the process of talking with attorneys & accountants but I just wanted to hear from the BP community on their experience.

Business Structure:

 - My partner and I are 50/50 on everything.

- We are in the process of creating a parent company, which will hold the subsidiary LLC's, which will then be the companies that actually hold property.

- We have individual LLC's, & each LLC holds one property at a time.

*Financing:  

- We get financing in our personal names to take advantage of lower rates, fees, more options in general. But we retain Title in the corresponding LLC for the specific property.

*Ownership:

- Again, Title is held in the corresponding LLC

My thoughts:

- Does getting financing in our personal name break any legal barriers created by the LLC structure for these houses?

- Thus, is it better to pay more up front, to get financing & hold title in the LLC?

- Could getting some sort of umbrella policy allow us to continue getting financing in personal name, and holding title in the LLCs?

You obviously don't need to answer these questions directly, I'm just sharing what I'm thinking, but if possible let me know the following:

My Questions to you:

What is your experience with your business structure?

Have you found getting financing with the LLC to not be as completed as we are finding?

How do you protect yourself, & your business partner from any unforeseen emergencies?

* I've been posting a lot, but I've spent years reading, learning, listening, and practicing what I've learned from the BP community and now I'm in a place where I have tons of specific questions as I get further into my investing career. 

Any advice is greatly appreciated.

As always, thanks BP community!

[Ashish Acharya]

@Ryan Luby

Please ignore voice to text typos.

My thoughts:

- Does getting financing in our personal name break any legal barriers created by the LLC structure for these houses?

First off all, banks might not loan money to LLC. They will want you to retitle the house on your name, and then get mortgage. After you receive a loan, the house can be transferred to your LLC( if Loan is not called due on sale clause) Not an attorney, but personally guaranteed loan related to property in an LLC does not pierce a corporate veil. Everyone does it. Have seen Multimillion apartment deals have loans that are personally guaranteed.

- Thus, is it better to pay more up front, to get financing & hold title in the LLC?

You will get better rates since you have low LTV on the loan. Again, your bank might required the title be in your name.

- Could getting some sort of umbrella policy allow us to continue getting financing in personal name, and holding title in the LLCs?

What do you need to understand is financing is not a legal liability. Legal liability comes from a lawsuit. If someone sues you because of your rental, theLLC or the umbrella policy should be able to help you then. Loan however does not create any legal liability.

This is exactly why bank will want you to personally guarantee a loan. If the loan is on the LLC's name because LLC owns the house, Bank cannot come after you to collect the money if house sales for less than the loan amount Because LLC Treats you as a limited partner or member. However this does not mean that you should get an umbrella policy or LLC to protect from the bank. LLC or umbrella policy is used to protect against other lawsuits not to protect against the bank coming after you.

My Questions to you:

What is your experience with your business structure?

For rental properties business structures are mostly used for legal protection not to Save on taxes.

Have you found getting financing with the LLC to not be as completed as we are finding?

Unless your businessLLC has a good business credit or has been in business for many years, The banks hesitate to loan the LLC. I know that some banks will Loan you if you put down a huge down payment. So a good relationship with the banker might help you in this aspect.

How do you protect yourself, & your business partner from any unforeseen emergencies?

I think you got it covered. you need a good entity structure(if required)and a good insurance to sleep at night. an attorney can help you. 

Don’t overthink about entity structure before you do the deals. Let’s finish one Deal first and then you can worry about actually creating an entity. You can always Contribute Property to an entity without any tax consequences. So let’s find a deal first and then you can go to all complicated Transaction if needed.