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Thread: Need advice for joint venture

  1. #1
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    Need advice for joint venture

    Hello Everyone,

    Not much activity it seems in this section lately. I hope there are lurkers out there that won't mind offering some wisdom thru experience to the discussion.

    My friend and I want to l buy a 4 unit building. We want to live rent free. We have 30K each to put down on the purchase of a 4 unit (for a total of 60K), I would live in one lower unit, he would live in another. We want the renters in the upper units to cover the mortgage. I have yet to figure out where that leaves us as far as purchasing power. We might be able to pump in another few K if it means a better area. Not interested in buying a building in a trouble area..sorry, I'm not a pioneer or a trailblazer.

    My real question is how we should proceed into a partnership. I want to have all angles covered as far as responsibilities and exit strategies are concerned. The first 4-unit is a test. If all goes well, we might be up to buying another..and so on. We have some quality friend-level connections in the construction trade who we could farm out anything we could not handle ourselves as far as repairs. My friends parents are deceased and was left his family home, and he wants to sell and go into this joint venture. However, he has no 9-5 job. He is a painter by trade without health care and works. That point is the most unsettling to me. If he puts 30K into this venture, that will leave him with about 40K cash to bank. Now my thoughts are what if, God forbid, he has some sort of health issue and has to rely on that money. I'm just trying to think of all situations which would cause one or the other to leave, and what the other would do. I was thinking of forming a LLC, for liability reasons. Any input?

  2. #2
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    Quote Originally Posted by art2012 View Post
    Hello Everyone,

    Not much activity it seems in this section lately. I hope there are lurkers out there that won't mind offering some wisdom thru experience to the discussion.

    My friend and I want to l buy a 4 unit building. We want to live rent free. We have 30K each to put down on the purchase of a 4 unit (for a total of 60K), I would live in one lower unit, he would live in another. We want the renters in the upper units to cover the mortgage. I have yet to figure out where that leaves us as far as purchasing power. We might be able to pump in another few K if it means a better area. Not interested in buying a building in a trouble area..sorry, I'm not a pioneer or a trailblazer.

    My real question is how we should proceed into a partnership. I want to have all angles covered as far as responsibilities and exit strategies are concerned. The first 4-unit is a test. If all goes well, we might be up to buying another..and so on. We have some quality friend-level connections in the construction trade who we could farm out anything we could not handle ourselves as far as repairs. My friends parents are deceased and was left his family home, and he wants to sell and go into this joint venture. However, he has no 9-5 job. He is a painter by trade without health care and works. That point is the most unsettling to me. If he puts 30K into this venture, that will leave him with about 40K cash to bank. Now my thoughts are what if, God forbid, he has some sort of health issue and has to rely on that money. I'm just trying to think of all situations which would cause one or the other to leave, and what the other would do. I was thinking of forming a LLC, for liability reasons. Any input?
    You need a lawyer to formulate a formal buy sell agreement that stipulates what happens if the partnership dissolves.. That is more important than the designation IMHO

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    Thanks, I'm aware I'll need a lawyer..I just wanted some advice on what I should lookout for. Anyone else out there who did something similar?

  4. #4
    Member nogods's Avatar
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    you gonna need three lawyers: one for you, one for your partner, and one for the partnership itself.

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    Form an LLC first, as a partnership...use a lawyer who specilaizes in this type of law....then...he/she can explain all the requirements of each partner...and even put in a contract between the 2 partners of each partners' responsibilities/obligations.

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    Thanks Joe! So, we could utilize one lawyer to do all this? that sounds reasonable.

    Have you ever formed an LLC partnership for a real estate project before? If you have any tips I sure would appreciate it.

  7. #7
    Tony Fracasso - Admin
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    If possible don't have partners. Do it yourself.

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    Quote Originally Posted by art2012 View Post
    Thanks Joe! So, we could utilize one lawyer to do all this? that sounds reasonable.

    Have you ever formed an LLC partnership for a real estate project before? If you have any tips I sure would appreciate it.
    Partnerships are an eventual problem just waiting to happen...can be even more so when with family member!!

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    Quote Originally Posted by WNYresident View Post
    If possible don't have partners. Do it yourself.
    Like to, but my buddy has (or will) be coming into some liquid assets when he sells his family home and downsizes. Essentially we will start minimally with 60K cash.

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    Appreciate the advice..we have known each other and have a close friendship (we like to have beers on the weekends, watch hockey/football, etc..) for over 25 years. We are both aware something could go wrong and end in no longer being friends. We are trying to think of as many variables as possible so both our responsibilities are crystal clear.

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    Tony Fracasso - Admin
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    How much is the 4 unit?

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    Quote Originally Posted by WNYresident View Post
    How much is the 4 unit?
    To be honest, we haven't really figured out yet how much we could afford to be at our "rent free" level. Like I said in my original post, we could dump in a few more K apiece to get into a better area, but myself I'd rather take that few extra K and put it into the LLC bank account for future repairs.

    Why, do you have a 4 unit you're selling ?

  13. #13
    Member nogods's Avatar
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    Quote Originally Posted by art2012 View Post
    Appreciate the advice..we have known each other and have a close friendship (we like to have beers on the weekends, watch hockey/football, etc..) for over 25 years. We are both aware something could go wrong and end in no longer being friends. We are trying to think of as many variables as possible so both our responsibilities are crystal clear.
    And whose interest is that single lawyer representing? Yours? Your partners? The partnership?

    How do you tell an attorney in confidence your concerns if he represents both you and your partner? Does he tell you everything your partner told you? does he tell your partner everything you told him?

    Every time I get contacted by a husband and wife with a tax issues I insist that the spouse that did not contact me have a consultation with a separate attorney before agreeing to have me represent both spouses in the matter. Over the past 30 years I've had a few spouses decide to keep separate counsel after that initial consultation (all for good reasons.)

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    Quote Originally Posted by nogods View Post
    And whose interest is that single lawyer representing? Yours? Your partners? The partnership?

    How do you tell an attorney in confidence your concerns if he represents both you and your partner? Does he tell you everything your partner told you? does he tell your partner everything you told him?

    Every time I get contacted by a husband and wife with a tax issues I insist that the spouse that did not contact me have a consultation with a separate attorney before agreeing to have me represent both spouses in the matter. Over the past 30 years I've had a few spouses decide to keep separate counsel after that initial consultation (all for good reasons.)
    I understand your points. Thanks for explaining that in more detail. In order to keep the arrangement fair and objective, I will recommend we use three separate lawyers..

  15. #15
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    Quote Originally Posted by nogods View Post
    And whose interest is that single lawyer representing? Yours? Your partners? The partnership?

    How do you tell an attorney in confidence your concerns if he represents both you and your partner? Does he tell you everything your partner told you? does he tell your partner everything you told him?

    Every time I get contacted by a husband and wife with a tax issues I insist that the spouse that did not contact me have a consultation with a separate attorney before agreeing to have me represent both spouses in the matter. Over the past 30 years I've had a few spouses decide to keep separate counsel after that initial consultation (all for good reasons.)
    Have to agree with WOOF.

    You need 3 lawyers. The cost of having someone represent just your personal interest is much more valuable than the risk created in not doing so.

    I would also look into forming a corporation for the business rather than a LLC. This allows you to issue shares in the corp.

    If something happens down the road like a party wishing to leave or you want to bring on additional investment for a new property, this makes it much easier.

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