A graduate school buddy of mine and I have been talking about creasting an LLP to begin investing in real estate in the DC area. We are looking for any and all advice regarding the best and easiest way to set up this partnership, expericences that people have had, and what should be our next steps.
We both own real estate and are somewhat savvy about local markets but are clueless as to how to join together. We are contemplating asking others to join in with us in order to create an initial fund of approximately $100,000. Questions that arise from this are a)how many people is too many b)how do you limit/organize decision making c)how do you gauge peoples’s different levels of risk.
Please let me know any of your experiences. This information does not have to be limited to experiences in the DC region, but anything region specific advice would be helpful.
I would say to find a property before getting concerned about an entity. I have been advised (in TX) that an individual LLC for each property is a good way to protect yourself. It’s very easy and inexpensive to set up, and doesn’t need to be done until a property is under contract. You can have any number of members in the LLC.
If you have access to money, use it for the purchase and/or renovation of the property and pay the investors 10-12% or a percentage of the profit. You don’t want too many people having a say in how your business will run. If you find solid investments (under 65% of retail including repairs), their money is safe and they will be well compensated for the (low) risk they are taking.
I too am fairly new at this real estate inversting thing but I do not lack education… I’ve read numerous books on investing from different people, and attented many workshops, to gain a solid foundation to build on.
One of the things I’ve learned…If you are going to put each home in an LLC for protection what you need to do is go a little farther with that and put them in a land trust with an attorney as the trustee. Once the trust is established you will then FIRE the attorney as the trustee. Now, if you or any of the members were to be sued they would never be able to take the houses away from you because they wouldn’t be able to tie them to anyone. Does this make sense to you. I suggest that anyone who has a business should do this. That way what is personal stays personal and what is business stays business. This is called ASSET PROTECTION…
If anyone else has some input on this subject please contact me.
Why would you fire the trustee? Who would then become your trustee? The trustee of a trust is the person who is exposed to public scrutiny. Since you would have attorney/client priveledge, you would be protected from public scrutiny. If you became the trustee as well as the beneficiary, you might as well not have the trust. If you had your sister become the trustee, you would not have attorney/client priveledge and she would be required to tell who the beneficiary of the trust was. What is your purpose in firing the trustee?
In response: Attorney/client priveleges have nothing to do with a person being able to see what you own and sue you for it. Why do you need a trustee? Anyone, including the plantiff’s attorney, can find out what your property is, where it is, what it is worth, and what the debt is. To be anonymous, many people take their properties out of thier names and put them into a land trust. Then you do not own it; the land trust does. You can call it 1234 Anywhere Street Trust and become the benficiary, the owner, and the trustee. You control it and still get the tax advantages, but it is not in your name. Land trusts are also good if you are flipping, wholesaling, or lease-optioning houses. You can contol them that way.