A Rather Complex Situation

[Matt Lawrence]

Hopefully this is in the right forum but there is really no clear cut topic for the situation me & my business partner are in.

In April of 2012 me & my best friend, who is also an RE agent, started our own buy & hold business with plans to do so to build a portfolio to live on when we retire. We are both 30 years old now. We just closed on our 6th single family & moving at a good pace.

The problem is that 5 of those homes are in my best friends name, the other in mine thanks to my Mom cosigning, because I couldn't get pre approval until this year (hopefully) which increases his liability/risk. We are in this 50/50 but I know its not fair for him to be at greater risk while having 2 kids & married while me being single with no kids. I am told I will be pre approved because of the difference of money I made in 2013 compared to my 2012 income (Im self-employed).

We started an LLC S-Corp & have not yet transferred homes there for fear of having to pay off the remaining equity sooner than our 30-year plan; I've heard in 3 years its possible?- which could wipe us out if having to pay $70k on just 1 home. We plan to at some point this year after meeting with our Tax Advisor but not sure of the best approach.

This leads to my partner not only worried about what could happen, and understandably so, but also where his finances will be in 5-10 years. What if he wants to send his kids to a private school & needs $15k to do so? He wants to be in a position to have the option to sell a house to cover family costs like that while not having to have me approve it because we are in a different stage in our lives. I myself do not plan to sell homes for a longer period of time, but I know that things change as we can't predict the near future so I'm trying to be open to things of that nature.

Having explained this - sorry its long - are there any recommendations for either side of this? We are considering (in no particular order) 1)title transfers to even things out, 2) sell my share of ownership of our company where he would outright own the 5 homes that are in his name & I do the same for the home in my name, 3)put 3 homes in the LLC and put the next home in my name, making it owning 2 homes each, with 3 in our company to even things out.

It should be noted that I trust my life with this guy, he's my best friend & we both want whats best for each other & will be meeting with our attorney, who has a real estate background, this coming Wednesday.

What would you do in my shoes? In his shoes? We want to do what's best for the long-term and want to do this sooner than later. We want to continue working together if possible. Any advice would be greatly appreciated.

Thanks in advance,

Matt

[Bill Jacobsen]

As I understand the current situation, Your friend owns 5 houses and you own one. If he needs money he can sell one of the houses. The fact that you have a LLC has no bearing on anything. You are not currently using it.

Your friend owns 5/6th of the property but also has 5/6th of the risk. That is not a problem.

If neither of you have special unique skills I would recommend that each of you run your business separately. Being in partnership just complicates all your future transactions.

Bill