Selling Fractional Ownership in Rental Properties

[Jack Victory]

Apologies if this is a topic that has been covered or is more appropriate in a different section but I am looking for information about selling fractional ownership in rental properties. Most of the information I have found pertains to timeshares versus rental properties. Can anyone provide some basic guidance or references pertaining to this subject?

To expand on the question, from a legal and business perspective, what are the considerations and/or limitations in the following scenario:

Bob buys the property at 123 Main Street through a business entity in which he is the sole managing member, ABC LLC. The property is bought for $100,000 (80/20 LTV) with a traditional mortgage and then transferred to ABC, LLC but personally guaranteed by Bob. For $10,000, Bob offers Joe and Mike, respectively, 10% stake in ABC, LLC in return for a proportionate share of the rental income and appreciation.

Joe and Mike have the potential to earn a respectable return on their investment without the headaches of solely owning or managing rental properties and Bob has recouped his initial investment while retaining 80% stake in the property.

This seems like a reasonable model but I have not found much information out there about similar ventures and I am sure there are a number of issues I am overlooking, i.e. securities laws, accounting complexities, etc.

Any help or guidance would be greatly appreciated.

[Jason Hirko]

@Jack Victory what you are describing sounds an awful lot like a very small scale real estate investment fund. I have friends that do this on a much larger scale, and what I can tell you from experiences with them is that there is more regulation with this than you would think (see: accredited investors, etc) and when you introduce debt to the portfolio, it changes the dynamics of how the fund operates considerably. If you are going to do this right, plan on spending $15,000 to get a real estate attorney and a specializing CPA in a room together to go over all the fine points and let them set you up to do it the right way.