Entity structure with equity partner?

[Joey Budka]

Can anyone provide insight into various approaches to structuring an entity for a single-property acquisition with two partners, one being the operating/managing partner, and the other being the silent majority equity partner? 

We are in contract on a deal and need to draft an operating agreement that outlines responsibilities, profit share, etc. before we obtain our loan and close in the next 60 days. 

We have everything roughly agreed upon, so we just need some guidance about best approach and the pros and cons of an LLC vs. LP structure.

We will be purchasing a short term, value add flip opportunity. The partnership will likely be designed for this deal only, as we all intend to take our profits upon a profitable exit post-renovation within 3-9 months.

[Eamonn McElroy]

@Joey Budka

"structuring an entity for a single-property acquisition with two partners, one being the operating/managing partner, and the other being the silent majority equity partner?"

 "We will be purchasing a short term, value add flip opportunity. The partnership will likely be designed for this deal only, as we all intend to take our profits upon a profitable exit post-renovation within 3-9 months."

Generally an LLC taxed as a partnership is advantageous in these situations.  Lots of flexibility with the allocations and distributions.  Might want a waterfall schedule in there for the capital partner.  If the operating partner does flips a lot, he could own his/her partnership interest through an S Corp, if he/she has scaled that far.  This will help mitigate the SE tax flowthrough.

Make sure to run everything by an attorney and tax CPA/EA.