Partnerships

I’m looking into purchasing a 4 unit property with another gentleman and was wondering how to go about setting up a partnership. I’m not a fan of handshake agreements…

Also, do you know if all the benefits of real estate (tax write off, depreciation, etc) would be equally split between the two of us? We’re doing the purchase under our personal names and will probably roll it to an LLC once the rehab is done.

Has anyone been involved in a partnership? Good or bad stories? Anything I should look out for…

Thank you!!

G

If you will use an LLC, than start with it now. There’s no point to waiting, but given what you have said, your and your partners personal assets are at risk if the LLC is responsible for an injury.

The operating agreement will be the partnership agreement and the two of you should decide who will do what, who is responsible for what, who will pay for what, how much will each contribute, how the profits will be split, what repairs will be made, what type of materials to use for the rehab, how it will be sold, what happens if one wants out, what happens if one dies. After you work out all these details, have an attorney who regularly drafts partnership agreements draft the operating agreement. Work out all the details now before you start. It will be much more expensive later when you are partners and disagree over an issue.

good advice.

I was called on to liquidate a partnership in trust for two brothers who decided they didn’t like each other anymore. One sued the other and you know how that went. The judge ordered the partnership liquidated to satisfy the partnership debts. At auction, it didn’t bring enough to leave anything for the brothers. It was sad.

Always always always have an exit strategy.

Thanks for the advice!

Is it possible to purchase a property with an LLC without history? We would need to set one up and I thought you had to have some credit history through the entity before someone will give you financing? I did get pre-approved today and the loan officer said the property (rents) itself would qualify for the loan needed. I should probably have asked while I was on the phone…

Can you split the tax write offs on the property through a partnership? We would both be paying the note so I’m assuming when year end comes we would just split the interest, taxes, and depreciation down the middle (we would be 50/50 partners).

Thanks again to the both of you!!

G

yes, you can get financing to an entity, but a personal guarantees are required. Note that you are just guarantors, you do not personally own the property.

Net income from the partnership will flow through to the personal tax returns of the partners at whatever their % is, and be taxed at their individual rates. So, yes, the writeoffs are “split.”