Contract for 3-person deal - lawyer referrals/recommendations

[Taylor Valle]

My husband and I are planning a deal with 2 of our friends who are experienced real estate investors. We have a 4 unit out of state deal lined up in Pittsburgh, PA and need to create a legal contract prior to executing the deal. We are seeking legal counsel on how to best structure a partnership for investing agreement. We reside in Northern California as do our friends, and not sure if we need the lawyer to be local to us or from the state we are investing in. Any input is greatly appreciated. Thanks in advance!

[Katie L.]

@Taylor Valle

Do you care about liability protection at all? If you do not form a limited liability entity (LP, LLC, or S-corp) then you will be deemed to be a general partnership. Joint ventures are treated as general partnerships. General partnerships do not provide any liability protection. If you do form a limited liability entity, and you are CA residents, chances are you are "doing business" in California and will be subject to the $800/year minimum tax. This is still the case if you form your entity in another state. Will this be buy and hold or flip? Are you each putting in cash or is one person putting in services?

As for what state to have your relationship governed by, seems it would depend on what types of disagreements/issues you are most concerned with.  If you are more worried about tenants, maybe it makes sense to have your entity formed in the state where you are doing business/owning property because lawsuits with tenants would likely be in the state where the property is located.  

However, having a CA agreement can have significant benefits in your case to govern possible disagreements or future issues with your friends such as who can transfer your ownership interest, what if one person wants out and the others want to stay, what if the entity needs money but only one party can provide funds, what sorts of decisions require unanimous agreement and which can only one person decide, what dollar amounts require two signatures on a check versus one signature, etc.  Since you are all located in California, if it came down to going to court, you likely would not want to fly to another state to have your disagreements heard when you both live in Nor Cal (though is possible CA would have jurisdiction even if you formed in another state).

These are all things you can ask your attorney and CPA and get personalized advice for your situation.

*This post does not create an attorney-client or CPA-client relationship.  Readers are advised to seek professional advice.  The information contained in this post is not to be relied upon.