All Forum Posts by: Andrew A.

At the risk of coming across as making a shameless plug for my own profession, I strongly caution you against using web generated forms for two reasons:

1. You will still want an attorney to review your document who is familiar with not only the operation of entities generally, but also the considerations specific to real estate investing in a group. There are many risky ways to operate an LLC in the investment realm. For example, an individual in the capacity of manager of an LLC that invests in real estate could easily find themselves running afoul of SEC rules if improperly structured.

2. Since an attorney needs to review your document anyway, it's best to let them start out with their own form rather than trying to mold a stock document to your situation. It is actually cheaper (I'm faced with this on a regular basis in this day of certain legal websites that zoom to give you a result, no puns intended) to have an attorney use his own form that he's comfortable with and has built through experience, than for him to spend time studying and becoming comfortable with a new one.

Just my $0.02!

Hi @Karan Shah!

As a preliminary matter, I wouldn't recommend owning property in joint tenancy with a sibling. Is there a particular reason you intend to take title as joint tenants? 

By definition, owning property as joint tenants creates a right of survivorship (at least where I practice, perhaps CA is different?). What this means is that if something happens to either of you, the other automatically becomes the sole owner of the property, a strange result in the case of most siblings. Indeed, it is for this reason that I typically only advise joint tenancy for spouses.

To the root of your question, perhaps it would make sense in your situation to take title in the name of an entity, you and your tenants pay fair rent for whatever portion of the property you inhabit, and then you and your brother split net profits after paying expenses (essentially refunding you part of what you paid after expenses have been satisfied). I understand an entity is expensive to maintain in CA, but with multiple owners and the liability issues that could arise as a result, it may be well worth the expense.

Best of luck!

Hi there @Jeff Piscioniere!

Forming an operating agreement is akin to figuring out how a life together will look before you say, "I do!"

Key parameters that I'm always urging clients to consider:

- Management. Who manages day to day operations/decisions? Is your entity member or manager managed?

- Capital accounts. Will capital accounts be tracked? If yes, it's important to very precisely spell out how capital calls will occur, how they'll be handled, and what happens if on member fails to meet a necessary capital call.

- Buyout/Transfer Valuations. As mentioned by @Brian Schmelzlen, determining in advance how a member can (or perhaps must) get out in the event of a death, material disagreement, deadlock etc. Additionally, also as mentioned by Brian, determining how the value of each member's interest is determined is vitally important, especially in the context of real estate. By way of example, assume you work together for several years, acquire significant assets and cashflow, you're not going to want to have to get everything you own appraised to determine a buyout value. Your attorney will be able to direct you to a valuation method appropriate for your situation.

- Buyout/Transfer Restrictions. It is possible (in all states that I'm familiar with, but I don't know if CT allows this specifically) to restrict a person's ability to sell their interests to anyone outside the partnership. Similarly, if one member unexpectedly passes away, while they can will their interests as they see fit, a restriction can be put in place to restrict an inheriting member's ability to participate in voting, which helps prevent an unknown quantity from entering the mix and causing issues.

- Authority of Members. Perhaps one of your members handles financing, one construction and one acquisition. It'll be important to spell out each member's authority to bind the entity, and what checks/balances need to be in place. This is similar to management, but can handle more than your typical day to day issues.

- Minutes. In addition to your operating agreement, when any significant action is taken, it's important to document it to make sure no disagreements arise after fact. Your operating agreement can spell out spending limits etc before a vote and minutes are necessary.

I don't know if I've helped or muddied the water, but best of luck!

Hi @Spencer Herrick, I get this question from clients pretty frequently. I've helped form various entities in multiple states, and one thing has held true in each of them: a new LLC can be formed in much less time than a property can be offered on, inspected, appraised, and closed (absent a cash deal where you're differentiator is closing quickly).

I would certainly advise waiting to actually form an entity, but I'd get your road map in place in advance. While I'm new to investing, I've learned from many client interactions that there are several things that can be done to prepare for an eventual new entity, such as meeting with lenders to discover who is most friendly to commercial loans, meeting with realtors to see who operates most in the space you want to occupy, meeting with a CPA for advice of which type of structure would be most beneficial for your goals and intended purchases, and finally meeting with a good RE attorney who can walk you through what will be necessary when the timing is right.

Best of luck!

Thanks @Taylor Witt !

Are you looking in a particular market in Iowa? MF is the direction I'm most interested, so your post piqued my interest.

How did you get started and what's your background? I read your profile, but curious what you did prior to REI and working as a realtor.

Do you ever make it down this direction? If so, let me know when you might be down and I'd be happy to buy some lunch/dinner and see where things lead.

Hello all!

I'm a practicing attorney in SE/Central Iowa, practicing mostly in transactional matters, and litigation that stems from the same (read as "matters like real estate transactions, and subsequent eviction for investor purchaser). Through my practice, I have been introduced to the world of real estate investing, and am now looking to get involved on the investor end as well. I've been spending a good deal of time reading recommended books/articles, as well as listening to the BP podcasts anytime I'm on the road.

Hopeful for a truly synergistic relationship that accomplishes significant mutual benefit, and otherwise just building friendships and relationships in the REI community.

In the meantime, I'd love to hear how others found relationships/partnerships/mentorships to get started, and how the experience got them to their goals.

Thanks for any and all replies, and I look forward to hearing from you!