Partnering on a duplex, do we both need LLCs?

Question

Hey all!

My brother-in-law and I just locked down a duplex under contract and plan on closing at the end of the month. This will be his 4th property and my 1st!

Before I spend money with an attorney, I was curious what my options are. He has an LLC and I do not. We secured the deal using a conventional loan in which we both want to be 50/50 equity partners. Here are the questions that I am trying to figure out.

1. Is it possible to have a JV agreement between his LLC and me as an individual for this property?

2. Should I open an LLC so we have both LLCs on the JV agreement? Can I do this without an attorney?

3. If we both have LLCs that we want on this property, is that allowed given that we are using a conventional loan for this deal?

Thanks for the help, I am also looking for an attorney that works with investors but before I spend money on asking the above questions, I was hoping to get help from the forum. I read the new Real estate rookie partnerships book twice but still a little vague on how to handle this sitution.

Nick

Monica Caliber · Answer

I'm also curious...

Rick A. · Answer

How did it work out? What did the attorney advise?

David M. · Answer

@Nick Bandiera

I'm not sure if I understand your question, but is it this:  So you want your LLC and his LLC on deed to the property?  So, two LLC's owning the property as Tenants in Common?   I don't see why not...

What is it you are trying to do / avoid?  It sounds like you just don't "want to be in business" with your brother in law via the same LLC.  You'd rather have a contractual agreement, i.e. the JV, between the two of you?

Nick Bandiera · Answer

Thanks,

Can we both have our own LLC and the property is deeded to both LLCs?

Basit Siddiqi · Answer

There are two ways for multiple people to own a property.1. The property is deeded to an entity and there is paper-work indicating that the entity is owned by multiple people.2. Tenants in Common. The property is deeded with the names of multiple people

David M. · Answer

@Nick Bandiera

Well, you really should have a legal entity, such as a LLC, when investing with a non-spousal partner --- and you should have figured this all out before you put in the offer.  Because its a non-spousal partner, there are a bunch of "things" to be worked out in writing.  Also, it helps with the accounting / tax apportionment.

Now... Legal entities are NOT eligible for conforming loans, such as a conventional loan.  So, for better or worse, the mortgage would be in your name, and I think Title would have to be in your name as well.  So, your brother-in-law isn't even liable for the mortgage, and wouldn't be on Title...  Basically, its all you --- your brother-in-law is using your credit, and you are on the hook for everything...

To me, a JV is nothing more than a contract, and a contract can't hold TItle.  So, the above financing issues aside, you need to figure out how to hold TItle.  It could be in your name and your brotehr in law's LLC, which case you and the LLC would hold TItle as Tenants in Common (TIC).  This kinda defeats the purpose of one entity, such as one LLC, being on Title and the Operating Agreement stipulating how it will be run --- it avoids or gets around the TIC.  I suppose a JV could make all those stipulations.... I don't know...

So, if one entity holds Title, then you two are members (which is what LLC's calls its "owners") of the LLC.  Since its more than one person/entity, then it will be taxed as a partnership which will require its own tax return.  Mind you, he could use his existing LLC to be the member of this new LLC, so it'd be you personally and his LLC as the two Members of this new LLC to hold Title.

I hope this is making some sense.  You've got a bunch "mixed up" here.  Not sure what you can do to rearrange your financing, or if you are fine with everything in your personal name.

Good luck.

Alecia Loveless · Answer

@Nick Bandiera Not sure if you can do it with a residential mortgage but I just bought a 5 unit with a commercial mortgage where my sister bought her 50% under her LLC and I bought my 50% under my personal name, no LLC.

You will likely have to just place a quick call to your lender if you any to do something like this to see if they will allow it.

Zach Scherschel · Answer

Purely from my personal experience, not an attorney, so I would certainly check with one.

The easiest and least complicated way to do this is establishing an LLC as a partnership, with 50/50 equity split and an Operating Agreement in place. If he already has an LLC that holds other RE or entities, you won't be able to partner in that unless you purchase 50% equity in that which will certainly be more fees to attorneys and CPA to vet the purchase value, etc.

You could do a new partnership LLC through an online law service like LegalZoom or RocketLawyer for relatively cheap, ~$500 vs an attorney at a few hundred dollars/hr.

Not super familiar with the legality of executing a JV through something like this, so if others know more there, great!