Structuring a 50/50 partnership w/ my parents

[Alex Long]

Hello BP community, new investor here, I recently found a rental property that produces a great CoC return. Turnkey Duplex already producing cash flow at current rents. After running the numbers by my parents, they hopped on board. They are willing to cover half of the down payment and we plan to structure everything 50/50. (Equity and Cash Flow/Profits)

My issue: I need a partner to cover half of the down payment (Parents) & I need their help getting the loan. Best case scenario, I am able to put the loan in one of my parents names so that I do not have to carry the debt. It would rock my debt to income ratio as I already have a good amount of student loan debt.

Having my parents as partners seems to be the perfect partnership for me at the moment since I am unable to secure a loan and I do not have enough money for the full down payment. (Parents can definitely secure a loan for this amount)

My Question: Who should I speak with when trying to structure a partnership? (CPA, Attorney?) What formalities should I take? How long does the process take? How costly is this process?

(I have watched some of the BP videos about partnerships)

[Andrew Freed]

@Alex Long - Setting up a partnership or joint venture is a pretty straight forward process. You hire an attorney (or do this yourself) to set up a LLC with both you and your parents owning 50% of it. You also need the attorney to set up an operating agreement which designates the terms of the partnership. Once the LLC is set up, you create a bank account, your parents and you fund the account, use the funds for the down payment and operate out of that account.

Once the tax season ends, you need a CPA to complete the taxes for the JV entity hence having good books is instrumental. You need up to date profit and loss statements along with balance sheets hence definitely get a good bookkeeper to help stay on top of that. Once taxes are filled, the CPA will issue K1's to all of the owners of the LLC and that will flow down to your personal taxes. Normally, depending on the state, a LLC can cost anywhere from $1-2K to set up and then taxes can cost anywhere from $500-2k to complete. Bookkeeping usually runs a couple hundred a month for each LLC.

Lastly, when seeking lenders, see if any local credit unions or small banks will allow you to buy an investment property and put it directly into a LLC rather than putting it into the LLC after the fact. It's just easier that way and you do not have to worry about the due on sales clause. I hope this helps!