I own several SFRs that I bought as foreclosures in California. A friend of mine wants to do the same and - with compensating me - wants me to help him with buying the properties, doing repairs, finding and managing tenants etc. (essentially, the same task I have been doing for my own properties). Basically, he wants to “invest in distressed real estate” but does not have time for the “details”. I, on the other hand, don’t just want to get “paid by the hour” for helping him. Rather, I would like to get a portion of the profits when he sells these properties (his upside). He likes the idea and we agreed that I would get ~25% of the profits from his investments in exchange for my expertise and “sweat equity”. In other words, I will be doing a bunch of work now while he will pay me for it at a later date.
My questions: Any suggestions what legal structure we should use for such an arrangement? Is there a form of contract we should put in place? Or should we form a General or LL Partnership or an LLC? Whose title should the properties be in?
Thanks!
I’ve been involved in a number of similar ventures and the most workable arrangement I’ve found is using new LLC, having each of you own the % of units equivalent to your % agreement.
This will force you to sit down together and work out managment and profit structure now and get it all in writing.
be sure it’s in writing and specifies EXACTLY how the gain will be calculated.
sales price minus cost? who is paying holding costs? What do you do if the property doesn’t sell? How long? How is the risk of being on the mortgage being compensated? What if it sells for less than you think is fair, thus reducing your cut?
mixing business and friends usually ends up losing one or the other.
I agree with Mark.
It has to be in partnership. If you are not real estate licensee you can’t be getting more then $50/transaction in TX and CA laws are almost similar.
DFW