Quote from @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,
I am a broker in San Diego, and this pass summer I put this type of partnership together. I formed an LLC with myself and two good friends of mine. We each put in 50K and deposited into our LLC's checking account. I purchased our first flip in July/August of last year in Chattanooga, TN. We are now into our second flip in Chattanooga.
I am the managing member of the LLC and make the decisions on what we buy and I work with our rehab team that's in Chattanooga. My partners are effectively passive investors.
You should be thinking long term with your investors; we roll our profits over to the next flip. You don't want to form a new LLC and open a checking account for just one deal.
You can use your existing LLC, have your investor fund the deal through their LLC by wiring the funds directly to escrow. You can also go on title with your investors in the name of your LLC not your actual name and instruct escrow to wire you your percentage of the profits and your investors principle and profits at closing.
In addition to buying our flips in the name of our LLC. Instead of the operating agreement showing my name as one of the partners and my percentage of shares. I have my c-corp (Balboa Management) listed as the member. Just another layer of anonymity for myself. My partners just have their names listed in the OA, it's fine that way as well.
After we run 4 or 5 deals through this entity, I will shut it down and form another one. Just another way to not have folks find you after the flip has been sold.
Good Luck, your on the right path!
