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06.02.2011

Is A Real Estate Partnership A Good Way To Invest?

Real estate partnerships have been around since the cave man's days. This is because people have learned to pool their resources in order to reduce their risk and increase their leverage. Pooling ...






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06.02.2011 - Is A Real Estate Partnership A Good Way To Invest?


Is A Real Estate Partnership A Good Way To Invest? In order to help a real estate investor think through the process of establishing a real estate partnership, included is a checklist of issues to consider when assembling a partnership.

Checklist of issues to be included in partnership agreement:

1. Purpose for forming the company and goals the company wants to achieve

2. Partnership allocations

3. Capital investment (Initial contributions)

4. Value of the investments

5. Legal ownership entity: Corporation, LLC, LLP

6. Management strategy for the partnership

7. How and when to make partnership decisions

8. How and when to make the decision to sell the investment or buy more

9. How to decide on rent increases

10. Do you need a managing partner?

11. Who is the managing partner?

- Term

- Removal of manager

- Authority of manager

- Power and actions of manager

- Compensation of manager

- Right to delegate

- Authority to convey property

- Standard of care

- Restrictions on the authority of the manager

- Indemnification

- Duty of Loyalty

12. Tax issues:

- Who gets tax benefits

- In which proportions

- Who prepares the K-1 and by which date

- How accounting costs are shared

13. What happens when there is a cash shortfall

14. Failure to pay contributions

15. Loans by members

16. Meetings

17. Quorum

18. How to allocate profits and or losses

19. Liability insurance

20. Directors insurance

21. Life insurance and how the cost of the insurance is to be funded

22. Liquidating distributions if and when the company is dissolved

23. Books and records

- Accounting period

- Fiscal year

- Banking

- Monthly reporting

- Tax returns

- Location of books and reports

24. Death or incompetence of a member.

- Will transfer

- Transfer to a permitted transferee

- Limited or unlimited power of appointment

- Sale of share to a partner … right of first refusal

- Estate planning transfers (Review life insurance issues so that share dispersals are limited to the same number of parties. I.e. shares go to wife not to the six children each with one portion of a vote.)

25. Dispute resolution

- Mediation

- Arbitration

As you can see from the checklist, being involved in real estate partnerships is not easy, but careful planning will get you on the road to success.

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