flip flop Real estate investment with friend
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Level 2

flip flop Real estate investment with friend

I am investing 100% money to buy a property with my friend.   My friend will do all the management work to hire and fix up the property and will sell the property for profit.   Profit  is split between us 50 50.   He is buying the home under his company LLC.

My question is what form I need from him to report my share of the profit of the investment that I made.   Since it is investment income, I want to fill the schedule D so I can  pay the low tax on my gain.   Thank you

2 Replies
Level 7

flip flop Real estate investment with friend

What form? Sounds like you're going to be 50/50 partners....or members.....in an LLC and you need a lawyer to write an operating/partnership agreement for the two if you. This type of company will file a form 1065 and you'll get a K1 for your share of income or loss.

Level 4

flip flop Real estate investment with friend

If you're giving money to an existing LLC, what percent owner of the LLC will you be.

 

This sounds dangerous and needlessly complicated.  You're putting in all the money, right? Why don't you just buy it and give him a legally binding agreement to give him half the profit when it sells if he does the work? 

 

There is a risk he won't do the work because of sickness or some other life event.  There is a risk the RE (real estate) market will tank as it did in 2008, and you'll end up losing money.  

 

If I were doing this, I would ask him what he thinks is a good amount of profit he hopes to get on this.  I would offer to pay him that amount weekly or biweekly as he completes the work.  If it will motivate him to help it get sold, there could be a bonus for him based on your profit when you sell.  The house would be 100% in your name.  The advantage to him is he get paid a good amount immediately when he does the work, not at some future date subject to the vagaries of the RE market.  The advantage to you is you can hire someone else if a life event keeps him from doing the work.  You're still exposed to the risk of a fall in RE prices, but you're also exposed to the potential benefits if prices go up.  You both give up the risk of disagreeing on whether to take an offer, where one of you is eager to get paid but the other wants to wait for a better offer.  

 

As yourself what good comes from his LLC owning it vs the person putting in the money owning it.  You can still be partners, with a simple agreement to pay him what you both agree is a good profit for him as he does the work.  But you would own it, and you would control whether to have someone else do all or part of the work, and how or when to sell the property.

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