How to structure a flipping partnership?

[John Clendenon]

Starting to flip with a young go-getter. I put up all the cash and he does all the work. What's the best structure for such a partnership: liability, taxes, avoiding commingling with other deals, expense tracking, etc. Should I structure each deal as a loan? Should we set up a separate development company LLC with insurance etc? I'm more concerned with avoiding mixing funds with his other deals and more concerned with real estate ownership liability than safeguards against misuse of funds. In other words, setting a deal up to look like a note might be perceived as a partnership if the net is split evenly in the end. Use joint checking and credit card accounts? Or wire draws to his accounts as needed? So what's the best structure?

[Jessica Zolotorofe]

Hi @John Clendenon. I would suggest an LLC. Within the LLC, you can structure either way, either you have a percentage interest based on the fact that you are putting in the money and he gets whatever percentage you agree upon which would compensate him for the work he does, and then profits are split accordingly. The other option is to take a smaller percentage interest, but make actual loans to the company that have to be paid back with interest before there are any profit distributions, and you can them take a mortgage on the property (assuming you don't need conventional financing, as well). Either way, you would need a strong operating agreement setting forth who contributes additional capital if it is needed on a project after you put in the initial cash, distribution of profits, who manages day to day, who can bind the company in contracts, lien the property, negotiate financing, sell the property, etc. As far as your concerns, there should be a separate bank account for the LLC and for any withdrawal not a specific budget line item (if you're renovating), or not a recurring monthly expense (if you hold and lease out), or maybe over a certain dollar threshold, checks and withdrawals require both of your signatures. The operating agreement can also require that he provide you with monthly operating statements and anything not an ordinary expense you need to approve in advance. If you prefer, you can strictly be a lender with a lien on the property for whatever funds you contribute, or allow him to draw down money, like a line of credit, but then you won't own the property or have any rights to the profits that exceed your repayments with interest. Hope that helps some! Happy to discuss further if you want to message me. Good luck!