Best Practices For Structuring Partnership

[Todd Chandler]

My wife and I are Realtors and have completed two fix and flips and are about to start on our third.

We have an investor and his wife who want to fund a fix and flip as silent partners and split the profits from the project while my wife and I will provide the sweat equity.

Our investor and his wife have a new LLC that they intend to run their real estate investments through, and my wife and I have an LLC that we run our real estate business through.

We have never done a partnership deal like this and have a few questions:

1. Would the best practice be to form a new LLC where all four of us are managing members?

2. Should we open a new bank account in the name of the LLC that the other partners would fund?

3.   Should the purchase of the property be made with funds from the new LLCs bank account along with all other expenses?

4. Once the property is renovated and sells, do the proceeds come back into the new LLC and then are distributed from there to each couple's existing LLC?

I know that this is a lot, so please let me know if I need to clarify anything.  I am looking for best practices both from a legal protection standpoint and from a tax advantage standpoint.

[Todd Chandler]

Quote from @Milena Garcia:

@Todd Chandler Hello! I am in the middle of something similar. And I opened a new LLC, new bank account, proceeds will be distributed from the new LLC. I agree with Brian and I'd consult with your tax professional.

My struggle has been on the percentage for each partner since they are bringing 80-90% of the cash (for purchase and renovations) and I am finding the deal, putting the sweat and selling it. What is your agreement in reference to profit distribution? Thank you! 

 Milena, the beauty of private money loans is that you can negotiate whatever terms make sense for you and the partner.   I have a partner that I have done several deals with and he is good with a fixed return on his investment.   The newer investor that I'm partnering with is more interested in a percentage.   Every situation and investor is different in my experience.