Questions

How should I structure my real estate partnership?

I am a successful real estate agent and I am developing a partnership with another very successful real estate agent. In addition to residential, he has equity in a property management company and a development business. I would like some guidance and insight into various ways in which we can structure our relationship (equity, profit share, referral, splits, etc). I need help from someone who versed in either real estate partnerships or business partnerships. Thanks.

3answers

I've been a commercial real estate broker for 5 years now and have ventured into a handful of business partnerships - some have worked and some have nearly ruined me. What I find, on a surface level, is that you must absolutely share the same VALUES and MISSION as your potential partner. Having even stake in the game also helps, as it avoids one partner eventually grabbing "the upper hand". If you are not bringing cash or equity to the table, be prepared to demonstrate how your hard work can be translated into $ value. If you have more detailed scenarios or questions, feel free to bounce them off me at anytime. Cheers! -S.


Answered 5 years ago

Hello, these are very situation specific questions so I'll try to be as specific but general as well so as to not misguide you.

For a partnership, I have structured both an S corp and LLCs in regards to real estate ventures. An llc should always be your default route, particularly if there will be multiple projects where a multitude of third parties will be in conjucture for each project.
This allows you (your LLC entity) to engage in the ongoing venture with your partner through another LLC (partners) that allows you to conduct business with their LLCs and receive bonuses rather than equity or straight pay...this is better tax option for you since you know realtors are taxed high through their 1099s *talk to your accountant to set that up*

LLCs engaging with other LLCs for a project is great specially if there are other "partnerships" incolved as well. Is not just about how to get paid but avoid being taxed if possible and have the added protection.


Answered 5 years ago

Legally, there are many ways to structure the partnership, such as the ones you mention. It depends on who is bringing what to the partnership (money, knowledge, skills, time, effort, etc.) It also depends on the level of trust and need for safety of each partner. For example, if a partner wants to be assured that all of his/her principal and interest will be returned, then he/she would be most comfortable as a debt partner (like a bank) where the terms are secured by the real estate. If the partner is willing to take more of a risk for a greater return, then an equity partnership might work best. Then you both share the risk and returns, depending on your contributions. Keep in mind that a partnership is very much like a financial marriage. Things can look great going in but they often fall apart. So you need to hope for the best but plan for the worst with a good "pre-nup" contract so everyone is clear. I can help you with this if you want to protect your partnership going in, hopefully to have a long and profitable relationship. Hope this helps and best of luck!


Answered 4 years ago

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