Group Real Estate Investment, Company Structure?

[Rickchise23]

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Hello,

I am starting a company that pools together capitial from different investors and invests in real estate nationwide. Ownership percentage will be based on percentage of capitial or active management/hours of work put in.

My question is What ownership structure is used. I am thinking an LLC with certien guidelines set forth would work. I have heard of a similar structure being an Reit but that comes with a minimum of 100 investors and has a different set up.

The idea is to have 10-12 people invest $10,000 or so each and buy properties that produce a revenue stream as a small return on the investment. each party would have an equal ownership interest.

For pooling these funds together and researching and locating prospective properties the company would also retain an equal portion of ownership. We would also manage and take care of the renovation of the properties.

Any help would be greatly appriciated.

Rick

[Adelaide01]

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[DerekS]

You can set up limited partnerships via an LLC. You can spell out each member's ownership details in the operating agreement, including all the minutiae details.

[GlobalWealth]

use an LLC or Limited Partnership. If using the LP, you will also need an LLC as the general partner.

[rdc]

An LLC (or Series LLC) is an appropriate form for this situation. However, you will likely want to elect (and create a legal operating agreement for) a Manager-Managed LLC, rather than a Member-Managed LLC. The actual interests in the LLC would likely be trifurcated, and it is likely that you would want to structure two or three classes of unit ownership, depending upon the roles of those involved (particularly the investors), distribution policy, profit/loss allocation policies, and other factors.

[GlobalWealth]

I will expand on my previous post here. I work with many real estate investors who run investment partnerships in the same manner you are suggesting. I would recommend forming a Limited Partnership (LP) with and LLC as the General Partner (GP). In most cases it is best to have the LLC as a 1% owner therefore limiting the liability. All limited partners have no personal liability beyond their original investment, but also have no management involvment in the partnership. The GP hold the management responsibility and 100% liability of the partnership. By using an LLC as the GP, you have now confined the liability of the partnership to 1% of the value of the assets at a maximum. A limited partnership also gives you excellent asset protection benefits and distribution flexibilty. Your limited partners would have partnership interest in relation to their invested capital. From a taxation standpoint, all income to limited partners is passive income and therefore taxed at a lower rate. You would likely need an accountant to prepare the tax return for the partnership to provide all partners with a K1 for their personal income tax returns. You would certainly want a good operating agreement to spell out the terms of the partnership. For example, I personally manage an investment partnership and one of the items listed in teh operating agreement is that there is only one entry and one exit date per year for funds. Investors are not allowed to withdraw or add funds during the year. There is a small window during the year where these transactions are allowed. Let me know if there is anything else I can assist you with.