Guidance needed for forming partnership (or JV)

[Gary Parilis]

I'm looking for some guidance on partnership or JV. I've been communicating a lot with a potential partner, and we're very compatible (dispositionally and in our objectives), and we've built up a good deal of mutual trust over a couple of months, discussing deals in detail, etc. We're very confident we'll work well together, and that's a big deal. I have capital and he has intimate knowledge of specific neighborhoods in his local market, and can find deals, manage rehab, and the manage the rentals. We know what we want our commercial arrangement to be (pretty simple). Now the next step is to formalize it. Any advice on this? Should we form an LLC? Or just JV on individual deals? We plan to do a BRRRRs, which makes this more of a "marriage" than the "dating" we'd be doing if just flipping. Do we each need legal representation to negotiate/document an agreement? Or is there some boilerplate contract for this kind of arrangement we could use? We'll be doing business outside of my state. Would I need an attorney in the state in which we'd be doing business? I assume it would make sense to form an LLC there (if anywhere).

[Daniel Dietz]

It sounds like you are planning on accumulating and holding these for the long run if all goes well.

What we do is not BRRRR, as most of them are already in good condition when we but them.

We ran out of our own capital, both cash, SDIRAs and SOLO401Ks when we hit around 25 units. At that point we brought on a Private Money Partner, who also had been a Private Money Lender on previous deals. We knew each other for decades, and they were very familiar with our success for far in buy-n-holds. We did/do all out own PM on them also.

The way we set up our partnership is to do an LLC (about $800). I think it is well worth it to cover all the basis, make things simpler for buys outs, deaths, surviving beneficiaries, etc..... We (2 main partners & I) had already done 3 LLCs for various properties and essentially just tweaked if for the new one.

The way we did the deal was that the Private Money Partner put all of the down payment and a bit of reserves in, about 23% on a 260K property or 60K. We find, manage what updates are needed, do all ongoing PM and financial management etc..... We are 50-50 partners on all decisions, although they prefer to leave 99% of that up to us. We split all cash flow 50-50, and when time comes all equity growth 50-50. When we choose to sell some day, or do a large refi with 'cash out', they will get their down payment equity back FIRST, and THEN all the rest is split 50-50. Also, if we are ever NOT able to perform PM duties, the cost for that will come out of OUR half of the 50-50, since that is one of our main ongoing functions that we are responsible for.

One of the main things that the 'money person' gets with a good 'on the ground' partner who does a GOOD job like us is less than 2% vacancy, very low maintenance cost as we do many of the simple little 30 minute type of things, great loan rates as we have the connections and experience, and finding deals that are 'off market' that they would never find otherwise (20 of our 29 units were off market and found by networking and cold calls - there is virtually NO inventory in our rural area that hits the MLS)

The PMP gets a great steady return and sleeps at night, we get to 'make money with our time and knowledge' - it is a win-win in my book :-)