Best corporate/legal structure for real estate investment pool?

[GI-TX]

Hello All,

 

I and 4 other like-minded docs have come together to form a group to buy real-estate (income-producing properties,etc). I was wondering how best to structure our group for maximal legal and liability protection.

 

Thanks in advance,

GI-TX

[Dansignal]

I have a single member (me) LLC that owns residential and commercial properties. I'm the boss and make all decisions.   I am also a member of several LLCs that have several investors. These are all structured with a general partner who makes all investment decisions. The other members have no say in any decisions. This is okay because in all cases the general partner is a knowledgeable real estate professional. He is also motivated to perform well because he makes his living doing this and if he screws us the word will get out and that will be it for him. My advice is that you form a LLC with a general partner who knows what he is doing. You must be careful with the general partner because in some instances they do not make decisions in the best interest of the partnership.  For instance they may hire themself or a family member as a property manager and pay for either no work or pay above market. Best advice - talk to a real estate attorney.

[GI-TX]

Thank you. I will seek out a real estate attorney.

[Craigy]

GI-TX wrote:

Thank you. I will seek out a real estate attorney.

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Best route here.  This decision is completely dependent on your state's laws and the specifics regarding your situation.  Worth spending a little money to sit down with an attorney who can give you the right advice for you.

[Faithful Steward]

Craigy, is right. Best ownership entity option can vary by state. Best to talk to an attorney.

In addition, if asset protection is an important consideration, you might want to own each property in a separate LLC (or other entity type). Simply placing all your real estate in an LLC will shield your personal assets. But, separate LLCs will protect each property. For example:

Let’s say that I have 3 houses. The first house (house #1) is owned by LLC #1, the second house is owned by LLC #2, and the third house is owned by LLC #3. If a tenant slips and falls at house #1 one and sues LLC #1, my properties owned by LLC #2 and LLC #3 are protected from that lawsuit.

In addition, owning each property in a separate LLC can also help keep your real estate finances organized. Each LLC you own will have a separate EIN and a separate bank account. That means all of your income and expenses for each property sits within its own bank account. This makes it very easy to assess profitablity of each property, pay bills, and manage finances.

[Craigy]

Also, be sure to keep the separate entities separate, adequately capitalized, don't commingle funds and expenses.  Another good thing to discuss with your attorney.

[GI-TX]

How do I go about finding a good real estate attorney in my area? I looked through some archives on WCI for guidance but didn't find anything. May be I haven't looked hard enough. Appreciate all your help.

[mobilehomegurl]

It's probably best to talk with an attorney in the area with experience setting up legal structures for real estate investments in your state. You may want to check your local real estate investment club. Talk to the officers. Usually, they can point you in the right direction should you need referrals. Good luck!

[ifonlyFI]

Google biggerpockets.com. Good site to learn about real estate investing.

Yes, LLC

Secondly, definitely invest in real estate with like minded physicians. I tried to start an investment group with my three partners. We couldn't agree on anything. Main problem is that all of us think too conservatively and we're locked in fear. I find successful real estate investors to be very action focused. Most of us doctors are afraid to lose the money but don't realize it is easier to sustain a loss at our income.

Thirdly, look into real estate syndicates. I'm not referring to REITs. These syndicates can buy properties and very favorable financing. You and your partners could never structure such a deal as the pros. You get good returns without being a landlord.

[jfoxcpacfp]

You're fortunate. TX is one of the few (but growing number) of states that allow series LLCs. Ask your CPA or financial planner for a good RE attorney in your area.

[GI-TX]

Thank you!