How to Structure Partnership Agreement?

[pksam123]

Hello, me and three friends want to start buying cheap, distressed properties, sometimes fixing them up a little bit before renting them out, predominantly to Section 8 tenants, and also selling the properties. These properties would be purchased in one town in FL, where only of us lives, but where all of us grew up. That one person has been going around to potential properties, talking to realtors, and lining of bids from construction firms. However, that same person will have less capital to bring to the table. As time goes on all of us will probably have unequal capital to contribute, though. What is a fair way to compensate the FL partner for all the extra time and effort he invests, yet ensure that his interest as a partner, not as a management company, dominates his decision-making? And how can we have "catch-up" provisions that allows a person to catch up to 25%, yet not turn that into an option for the person's unfair benefit?

We are thinking our opening up an umbrella LLC that owns each property through a separate LLC. Some people have suggested grouping 5-6 properties per LLC. What do you think about that?

Any help would be greatly appreciated.

 

[army judge]

You should not try to do this yourselves.

All of you should pony up the money and hire an attorney to craft your partnership agreement.

Before you even start this venture, you need to speak with some landlords who are doing this.

Renting homes is a risky business.

Renting homes to disadvantaged people has greater risks.

Renting homes as a collective of people, more risks.

I own 18 homes and duplexes.

At one time, I owned 50.

I'm planning to get rid of them all.

 

[pksam123]

Oh yes, we are definitely going to consult an attorney, but we would like to already have developed some opinions on how we want certain basic issues in our business relationship to be handled (i.e. capital contributions, management disagreements, withdrawals and dissolution, share of losses, etc.). Clearly we will have to defer completely to the attorney on issues beyond our grasp (taking outside investments within the confines of securities laws, for example), and there will surely by many issues we are unaware of, much less able to handle ourselves. However, we just want to kind of narrow the issues as much as we can. Would you mind if I asked you to articulate a little bit why you're not so keen on this particular kind of business?

Thanks for your help

 

[army judge]

Oh yes, we are definitely going to consult an attorney, but we would like to already have developed some opinions on how we want certain basic issues in our business relationship to be handled (i.e. capital contributions, management disagreements, withdrawals and dissolution, share of losses, etc.). Clearly we will have to defer completely to the attorney on issues beyond our grasp (taking outside investments within the confines of securities laws, for example), and there will surely by many issues we are unaware of, much less able to handle ourselves. However, we just want to kind of narrow the issues as much as we can. Would you mind if I asked you to articulate a little bit why you're not so keen on this particular kind of business?

Thanks for your help

The economy is not robust.

The people you propose to do business with are being backed by the government.

Many of the people you are seeking to serve, have lost their homes because of poor choices.

Now, you want to risk your equity by renting to them.

Government spending is declining, as tax revenues fall.

Even when there was oodles of government money being doled out, the people receiving section 8 money are not the most reliable.

As the federal budgetary process works itself out, funding towards these kinds of programs will be reduced.

Beyond that, property values are declining.

Property investments are risky at best.

Why?

Because the return on your investment is not what it might have been twenty years ago.

All the while, some of the people you propose renting to will systematically destroy your property.

Why do you think they are having difficulty finding a place to live?

You're not holding your hand out begging for government money.

Think before you leap.

I wouldn't do this for many reasons, but you're free to do whatever you wish.

This is after all, The USA.

Good luck.