Author Topic: Residential Rental Property with Another Party  (Read 865 times)

Papa bear

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Residential Rental Property with Another Party
« on: May 26, 2016, 09:30:46 AM »
I'm looking for information on the best way to set up a residential rental property that would be purchased by two parties, specifically brothers. 

Back story:
Me:  3 rental units, strong cash flow, long term ownership.   FI, but more of a SWAMI.  Current small business owner with general knowledge of business entities.   
Brother: 4 rental units, short term ownership, properties will have strong cash flow when upgrades are complete.   Working towards FIRE.

We are looking to pool resources and diversify some of our rental portfolio.   I do not expect any issues with a "family business."  We are both experienced in dealing with rentals, DIY repairs and upgrades, leasing, tenant issues, etc. 

My questions are:  How are you set up as a business structure?   Did you start an LLC, C or S Corp, or stay as a partnership?  Is the LLC taxed as...?  Did you purchase the rentals as individuals or as a business?  Do you keep a separate bank account for the individual property or for a portfolio of properties?   Fund the account with a slush fund for repairs/mortgage?  Payout income yearly/quarterly/monthly?  Do you work with a PM or pay one of the partners/members a percentage of gross rent?

My initial thoughts are to keep it simple, purchase as individuals, default as 1065, and send K-1's annually.  Keep a separate bank account per property, pay a % of gross rent as a PM fee to the party that handles most of the PM, and pay out distributions of income annually.   

Thank you for the input!



Midwest

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Re: Residential Rental Property with Another Party
« Reply #1 on: May 26, 2016, 10:02:40 AM »
Not an attorney - I would consider an LLC taxed as a partnership.  LLC will give some liability protection and is cheap to form.  As stated above, not a lawyer. 

Would recommend against an S-corp for rental real estate due to basis rules and debt (easier to take losses in a partnership - including an LLC taxed as partnership).

zephyr911

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Re: Residential Rental Property with Another Party
« Reply #2 on: May 27, 2016, 10:30:49 AM »
There's nothing to stop 2 individuals from jointly holding property, if you really want to keep things simple. But, the liability advantages are nice, and if you want to do more of this in the future, you might want to have the structure now just so it can age and build credit.

LLC Partnership (me and 2 others) has worked well for me.

Why purchase as individuals if you have an LLC? The main benefit is having everything in the company's name.