Investors as Partners?

[Nick Shri]

I have friends interested in joining the REI ride. They want to come onboard as investors/partners. Should I open new LLC with them as partners? I will have bit of my funds and will be doing all the work (finding properties, offering, purchasing, managing rentals and so on). I would love to hear from others and their experiences..TIA

[Eamonn McElroy]

Partnership returns have gotten significantly more complicated over the past 2-3 years.

You should examine whether this relationship will have the scale to absorb the professional fees for tax return preparation annually.  You might be shocked how much it costs to prepare these returns.

You should also plan to maintain, or pay someone to maintain, the books for this partnership.  If you don't have a balance sheet, your preparer is going to find it difficult to track, maintain, and report partner capital accounts.  And you're going to pay extra for this difficultly.

If the venture doesn't have the scale, you're better off avoiding a partnership or bringing them on as debt investors.