Joint Venture Agreements For Real Estate Investors

Joint Ventures have been dramatically increasing in popularity since the 2009 recession. A Joint Venture Agreement is a partnership agreement. In the context of an LLC, it is known as an Operating Agreement.

Details about how profits and losses are divided, who controls the operations of the LLC, and which rights and responsibilities are designated to each partner are outlined in the LLC’s Operating Agreement. Properly created LLCs and Operating Agreements leave no room for the ambiguities that risk landing Joint Venture partners in court.

How do Joint Ventures help investors?

Joint Venture agreements offer investors a way to pool funds and split profits easily, allowing them to afford investment properties they may not be able to acquire on their own.

Who uses Joint Ventures?

New investors and veterans alike take advantage of these simple agreements, often in the name of securing profits on a relatively short timetable. That said, a Joint Venture is only as strong as the documentation accompanying it and the entity formed in its name.

How are Joint Ventures structured?

Typically, investors will form a venture-specific LLC. Royal Legal Solutions can assist you with drafting your Joint Venture Agreement and venture-specific LLC. Learn more about why many real estate investors need venture-specific LLCs and the assistance of a qualified attorney below.

Why Do I Need A Venture-Specific LLC For My Joint Venture For Real Estate Investors?

It’s helpful to think of a joint venture kind of like dating. You may really like your business partner. Perhaps they are successful in their own right, or you’ve seen how well some of their previous investments have gone. A joint venture allows you to take a test run at investing together. Maybe things will turn out great and you will go on to get “married” by going into business together formally.

But as with all things investing, success is never guaranteed. This is why we recommend a venture-specific LLC. You form this entity, alongside an ironclad agreement, to protect yourself and minimize the unavoidable risks involved in such investments.

The venture-specific LLC also offers liability protection. At Royal Legal Solutions, we always advise our clients to never keep property in their own name in the long term. Joint Ventures are no exception to this rule of thumb. There is no degree of safety conferred by two individuals having their names on a property. The only thing that will save your assets in court is the LLC structure. In addition to maintaining your anonymity, an LLC by design gives Joint Venture partners some very necessary liability protections. In the real estate industry, where anyone from a disgruntled tenant to an injured contractor or even your fellow investors can easily sue you, liability protection is essential for ensuring you won’t lose everything you have worked so hard for in a court judgment.

Why You Should Choose Royal Legal Solutions For Your Joint Venture For Real Estate Investments

At Royal Legal Solutions, we are real estate investors ourselves as well as attorneys. We have enjoyed Joint Venture successes, and also seen them go horribly wrong from a professional standpoint. Joint Ventures can be a great way to turn a quick profit and forge a good relationship with another investor. However, they are not at all without risk. We are here to help you protect yourself when you engage in any real estate transaction or business relationship.

Whether you choose Royal Legal Solutions or another qualified attorney, it is crucial to have some oversight for your Agreement and LLC. Improperly formed or filed LLCs will not give you the liability protection you need, and even worse, could end up totally useless. Usually, this happens when investors try to act as their own lawyers or seek out the assistance of Google, J.D. Don’t make this mistake. You don’t have to. You’ve worked hard to build up your real estate portfolio, and defending it with professional help is absolutely worth the investment. Contact Royal Legal Solutions today for more information about how we can help you minimize your risk in a Joint Venture.

What Are The Parts Of A Joint Venture Agreement For Real Estate Investors?

Every partnership starts off with the best of intentions. If everything works out beautifully, there is usually no issue.

Most Lawsuits And Legal Disputes Stem From Misunderstandings

We have found these can often be prevented by using the proper structures and having detailed documentation. When we help you with setting up your venture-specific LLC, you will receive a well-crafted agreement that keeps everyone is on the same page in terms of understanding:

While Joint Ventures can be a great way to turn a quick profit and forge a relationship with another investor, they aren’t without risk. We are here to help you protect yourself when you engage in any real estate transaction.

When you choose Royal Legal Solutions, we offer crucial oversight for your Agreement and LLC. Improperly formed or filed LLCs will not give you the liability protection you need, and even worse, could end up totally useless. Usually, this happens when investors try to act as their own lawyers or seek out the assistance of Google, J.D. Don’t make this mistake. You don’t have to. You’ve worked hard to build up a real estate portfolio worth defending.

Understanding Your Risk in a Joint Venture (JV) Partnership

Understanding Your Risk in a Joint Venture (JV) Partnership

Joint Ventures in real estate investing are pretty common.

Most of these partnerships are created by placing a property into an LLC and having the partners all own a portion of that LLC. If anyone wants to sue you or your partner they will not be able to go after the other person—the LLC makes that protection possible.

In the video above, Scott talks about how charging order against the LLC can make things messy and painful.

The best strategy to deal with this type of situation is to have both yourself and other partners enter into the Joint Venture LLC through your personal LLCs. This takes minimal effort to establish, but can prevent the messy and costly potential of dealing with a charging order.

How To Structure Your Partnership To Protect Your Assets

Say you and your friend that start a company together to invest in real estate.

Now say your friend gets sued, and next thing you know there's a charging order against the LLC. If you don't know what a charging order is, start with this article and come back.

The Cliff Notes version is this: If there's any money distributed from the LLC, it has to be used to pay off the creditors to the extent that your friend has an interest in the LLC.

This means you can't get any money out of the investments you and your partner made—even though he (or she) is the one being sued!

This is not the case if you guys both enter into a Joint Venture LLC. This means using your personal LLCs to become members of the LLC used for the Joint Venture agreement.

This will allow you to distribute money that you can now control without having to pay off those creditors and hurt your friend or your business partner. It keeps everything nice, smooth and amiable.

Intelligent Ways to Work With A Real Estate Investment Sponsor

In the world of crowdfunded real estate, many investors feel lucky to get an offer for sponsorship at all. Some get so excited that they overlook details that may later come back to eat into their profits. The reality is that you do you have the luxury of being picky about your sponsors. In fact, you have to be. Not everyone is an angel investor out to selflessly help you get a leg up in the world.

Real estate sponsors, of course, must have something to gain from the transaction. This is only natural and fair, but some purporting to help you may be using dirty tricks for their own selfish ends without your knowledge. This article is here to let you know about some of the most common traps investors fall into so that you can avoid becoming the next sucker.

Today, we are going to talk about three major dealbreakers that you should watch out for when seeking sponsors for your next real estate deal. We will also give you some tips to avoid dishonest deals, and more information on how to protect yourself as a crowdfunded real estate investor.

Let's dive right in.

Dealbreaker #1: Capital Calls After The Initial Investment

A capital call is basically the right to demand money from you. While these are a normal part of crowdfunded investing, legitimate deals will not come with repeated capital calls. This principle applies whether you're dealing with a peer sponsor or a crowdfunding platform.

Demands for money that just don't seem right are a sign that the sponsor intends to make money off of you as well (or instead) of the investment. Just say no.

None of this information should scare you off of crowdfunding online. Check out Adam's article on the best ways to raise capital online for more information on safer, smarter ways to get the funds you need.

Dealbreaker #2: Lack of Transparency

You don't want to deal with anyone who has something to hide. There are two issues you must be crystal clear on with any deal:

  1. Right to Inspect Books. As a business partner, you have the right to review the records of your business. Most states have enshrined this into law. However, some shady "sponsors" may attempt to have you sign a waiver of these rights. Don't do it. If you're even presented with such a waiver, the potential sponsor deserves a hard pass. Think about it: what possible motivation could a sponsor have for not wanting you to be able to see the books on your own investment? I can think of many, but none of them are good.
  2. Membership Rights. You need to clearly understand the rights you have on your investment. A sponsor who is cagey on this matter is likely angling for an unfair split. This problem can be easily resolved with an ironclad Partnership or Operating Agreement. I tell my clients to form an LLC, then help them craft the perfect Operating Agreement for their needs.A sponsor who is willing to sit down with you and an attorney to create an Operating Agreement is a good sign. They are showing you a willingness to collaborate--an important quality in a business partner. The opposite is also true. Anyone resisting a transparent agreement spelling out membership rights should be regarded with suspicion.

Dealbreaker #3: Unclear or Excessively Wordy Contracts and Offers

If your potential sponsor gives you an offer that is indecipherable, this can be a red flag. Whether it's an offer filled with legalese a Supreme Court Justice would need a dictionary for, or simply worded in a way you can't understand, this can turn into a big problem.

How You Can Protect Yourself

A bad contract doesn't necessarily mean the sponsor is duplicitous. There are a broad range of reasons why an offer may be unclear (we're looking at you, free Google contracts). So before you bail, try the following strategies.

Do Your Homework on Potential Real Estate Sponsors

If you've ever wanted to play detective, now is the time. Here are some tips for researching your potential sponsor.

Look at Their Record

Never take someone's word that their ventures are always successful. Research the person offering to sponsor your investment thoroughly. You can get started yourself by reviewing their online presence. Social media, reviews of companies the sponsor owns, and a quick public records search of their name and companies they claim to own. At a minimum, you are checking to see that they are who they claim to be.

Connecting with your local investment community can also give you more insight into your potential sponsor. Ask around among other investors to get an idea of the person's reputation. You may hear some gossip, so take that with a grain of salt. But if you can find someone who has actually dealt with your potential sponsor before, that individual could give you a very clear idea of what it's like to do business with the sponsor.

Finally, you can directly ask your sponsor about previous deals, then fact check their claims. An attorney can be a huge help here. For instance, if your sponsor claims to own something, your attorney can investigate these more thoroughly than you can. A good attorney can do things like check tax returns to verify whether the sponsor's previous investments were as profitable as claimed.

Don't rely on a single piece of information. Take everything you learn as a whole to get a good idea of whether your potential sponsor is the kind of person you want to deal with.

Ask Questions

Successful real estate investors ask questions. Lots of questions. If this feels rude to you, allow me to be blunt: get over it.

Actively investigating potential investments and those offering to sponsor them is vital to ensuring your deal goes through the way you want it to.  In addition to knowing what you should ask about potential investments, it's also critical to know how to handle potential sponsors.

It's best to be direct with your questions. Dancing around the subject in an effort to be polite is a waste of everyone's (possibly very expensive) time.

It's important to note that how a sponsor reacts to questions can tell you a lot about their motivations and character. If a sponsor is evasive or vague when you ask questions, then it may be time to move on. If a sponsor gets aggressive or defensive when questioned tactfully, get out. Even if they aren't trying to hide anything, you don't want to be stuck in a business relationship with someone who flies off the handle in a normal conversation.
If a person can't handle the pressure of an ordinary business conversation, odds are good they will react even worse to the inevitable stresses of managing real estate investments. Move on to someone with a cooler head, if only to guarantee smoother, more pleasant interactions.

Bottom Line: Be Willing to Walk Away From a Bad Sponsor

When you're looking for someone to sponsor your investment, the search can feel desperate. This is particularly true if you are new to crowd funded real estate, or even real estate in general. You may even perceive that you're in a position of no power. But this simply isn't true. You always have the power to walk away. And if you detect any of the red flags mentioned above, you likely should.

Unscrupulous people can smell desperation like sharks can smell blood in water. Even if you have yet to make your first investment, patience and thorough investigation of potential sponsors will pay off in the long run. No sponsor at all is better than a dishonest or questionable sponsor.

If you still have questions, or want to learn more about protecting your assets as a crowdfunded real estate investor, schedule your consultation with Scott Smith, Esq. here.

Joint Venture Liabilities Likely to Get You Sued

Freddy Stein is an active real estate flipper making big moves in the Atlanta market. He currently has four properties he’s rehabilitating, all held under his corporation.  

Bad idea! We always recommend that our clients hold each property in a separate LLC to insulate them from each other. The way Freddy’s business was set up, a lawsuit could wipe out all his investments in one fell swoop.

Apparently, his quack of an attorney had advised him not to complicate his business structure. The attorney argued that:

It was bad enough that the attorney did not understand the basics of asset protection for real estate investors. Worse yet, he did not understand investing.

Freddy was using money from private investors to finance his deals. This meant that if Freddy’s business got involved in a lawsuit and lost, there was a chance of losing all his property and the investors' money. This would then lead to each of his investors suing him for the lost money. Common situations like this are why any real estate should consider using separate LLCs when dealing with Joint Ventures. And yes, there's more.

There are even greater Joint Venture liabilities lying in wait for Freddy and other investors.

Liability Risks Associated with Joint Ventures

When you enter into any type of Joint Venture in real estate investing, you are basically in a partnership. For this reason, you have duties regarding how you treat your JV partner(s). A breach of any of these duties can result in liability for you and your business.

Good Faith and Fair Dealing

This obligation begins with the Joint Venture offer to third parties. It continues throughout the agreement until the property is sold.

Loyalty to Joint Venture Partners

You must always place the business or personal interests of your Joint Venture partners above your own. You must steer clear of situations that might cause a conflict of interest or self-dealing for your personal gain. In a business such as Freddy’s, it is very easy to fall into conflict of interest traps.  One of the partners could claim Freddy never devoted his best efforts to their deal because other Joint Venture deals under the same company were more lucrative. While he could argue that he’d never do such a thing, the investor's perception alone can motivate a lawsuit.

Freddy could point out that he did not disclose his other Joint Venture arrangements with his investors. This is a breach in itself because he did not disclose relevant information to the other partners.

Duty of Care

This requires that you act reasonably, in good faith, and without conflict of interest when making decisions for the business. For Freddy, there is a glaring conflict of interest when he’s trying to manage three Joint Ventures concurrently. In his current arrangement, he is managing all his joint venture contributions, income from the sale of property, and property expenses via one bank account.

Joint Venture liabilities may arise regarding the use of the joint venture funds for other investors and personal benefit to Freddy.

The truth is, lawsuits are not exclusively centered around issues related to business assets. They can also  be fueled by how a business is run. Freddy’s business is currently a legal disaster waiting to happen. Joint venture investors like Freddy should structure their businesses inside LLCs instead. Doing this can limit these liability risks and prevent potentially ruinous lawsuits.

How Does a Series LLC Work?

The Series LLC will work it's much like a parent/child structure. At the very top, you'll have your parent, the series LLC. The state assigns an EIN number and an official formation document for the state (Delaware, Nevada, Texas, etc).

Below the series LLC, you have the actual individual series. You'll have series A, series B, etc. Therefore, these are what I refer to as the "children."

A parent Series LLC can have as many children series it wants. Each one of these series is going to be treated as if it were its own LLC, for liability purposes. So, we hold an individual property or asset in each given series. In the case there is a lawsuit resulting in action against a house in series A, it won't affect the house in series B, C, etc.

Now you may have the need to be able to do joint ventures as your real estate business grows. These function just like LLCs. Due to that Series C could be a joint venture agreement with as many people as you would like. It'll have its own EIN number, tax return and its own operating agreement to conduct the business of that JV agreement.

With a series LLC, what it will allow you to do is to expand your business in a very professional way, protect your assets. So with all of these companies and all of these assets that you own individually, this will pass straight up through the series to have one tax return. Which means thousands of dollars a year in tax preparation savings for you.

My name is Scott Royal Smith, I'm an asset protection attorney focused on real estate asset protection and I'd like to help you.

How to Protect Yourself in a Joint Venture Deal

How to Protect Yourself in a Joint Venture Deal

Whenever you going into a joint venture deal, you'll almost always be inside an LLC where you'll be a partial owner of that company.

A lot of times you're protected because the property's going to be owned by a limited liability company (LLC). So if anybody were to sue you or your partner, they can't get to the ultimate asset.

Imagine a scenario in which you and your friend form a company together to buy a house. But your friend gets sued, and therefore there's now a charging order against the LLC. If you don't know what a charging order is, look at our other video regarding that.

Essentially, a charging order dictates that if there's any money distributed from the LLC it has to be used to pay off the creditors to the extent that your friend has an interest in the LLC.

Now your friend has to pay back those creditors before you can get any money out of your investment

This is not the case if you guys both enter into it with your personal LLCs that you used as investment vehicles. Use your own LLC to become members of the LLC used for the JV agreement. This will allow you to distribute money that you can now control without having to pay off those creditors.

 

Can My Husband and I Own Our Business Together as a Sole Proprietorship?

There are some cases where a couple who run a business together wouldn’t be interested in creating a formal business entity.

The question then becomes: can that business, being run by a married couple, be considered a sole proprietorship?

The answer is yes. The IRS allows a lone exemption for married couples who want to structure their business as a sole proprietorship.

Before going into details on that, there are typically four different kinds of business structures that the IRS recognizes. Those include:

  1. Sole proprietorships
  2. Partnerships
  3. Limited Liability Companies
  4. Corporations

In order for the business you run with your spouse to qualify as a sole proprietorship, the following conditions must be met:

  1. There must be no other employees actively engaged with the business. This includes children or other relatives.
  2. Both spouses must materially participate in the running the business.

With those requirements met, each spouse would be required to file their own Schedule C, reporting their individual share (usually an even split) of the business’s income. Each spouse in the husband-and-wife business (sole proprietor or partnership or other) would also need to file a separate self-employment tax form.

Should My Spouse and I Run Our Business as a Sole Proprietorship?

husband and wife business sole proprietor or partnership

This, of course, is a separate issue entirely. The big advantage of a sole proprietorship is that it’s one of the easiest business structures to establish. The major disadvantage of this structure is that you and your spouse are 100% liable if the business fails. Sole proprietorships offer no protection from creditors.

Another option that many married couples employ is a partnership. For tax purposes, it can be easier to file since there is only one form involved. On the other hand, the business will be required to obtain a tax identification number. Partnerships might also be subject to state and federal regulations. The major upside, however, is that partnerships offer more opportunities for growth.

There are no regulations that state that if you start a business as a joint venture LLC, which for tax purposes is considered a sole proprietorship, you cannot later change the structure of the business to a partnership, LLC, or anything else. For many married couples, having the option to start as a sole proprietorship affords them the opportunity to hit the ground running. It’s a simple and effective means of getting their business started without needing to file numerous petitions with state and federal agencies.

What makes sense for your business in the early days, however, may not make sense down the road.

What's The Right Business Structure For Multiunit Real Estate Investors?

Real estate investors love multiunit properties. These rental properties are in high demand, with renters scrambling to find duplexes, fourplexes, and of course, traditional apartment complexes in the parts of town close to work and play.

Multiunit investments are also surging in popularity in part because they are more resistant to inflation than traditional single-family homes.

While many of the same principles of business entities for real estate investors carry over to this topic, there are certainly special considerations that multi-unit investors must take into account. Below, we'll talk about the types of business structures that favor these investors, how they work, and what to keep in mind if you're considering adding a multi-unit to your real estate empire

Joint Venture Arrangements

Joint Ventures (JVs) are a popular choice for beginner investors, as well as those who prefer quick, one-and-done deals. They allow investors to pool money and equitably share risks and profits alike. Multi-unit residences and industrial properties make for a logical application of a JV agreement, as they easily divided for practical purposes.

JVs are a great option because they are clearly defined from the beginning. If your investment or partner(s) don't work out, you aren't locked in for life. But if you're successful, the JV leaves the door open for future collaboration.

Limited Partnerships

Limited Partnerships are most useful for investors operating their property with one partner. The terms of LPs are flexible, so your partner can be a fellow investor, property manager, angel investor, or anyone you see fit.

LPs are agreements that offer investors a high level of control over their terms. If you're considering this option, ensure you share your needs with a qualified attorney. Strong contracts will ensure you're getting the deal you want and will beef up your asset protection system.

The Series LLC

The Series LLC is among the strongest structures for any investor, and multi-unit real estate investors are no exception.  This structure is extremely versatile. It's easy to form a multi-member Series LLC, but it works just as well if you're investing on your own.

Common reasons multi-unit investors love the Series LLC include the following:

We hope this has given you a starting point on the best business structures for multi-unit investments. Of course, everyone's situation is unique.  Ideally, you want your structure in place before making any investment.

Interested in learning more? Check out our article, When It Comes to Taxes, Is Managing Rental Properties a Business or an Investment?

 

Joint Ventures in Real Estate Investing: How They Work

After the recession, Joint Ventures were hotter than documentaries about corruption at investment banks. If you’ve been in real estate investing since then, you’ve probably entered into one at some point.

These tasty commodities were attractive because they gave loan-to-value ratios as high as 70%. Not many real estate investors like to gamble with those kinds of numbers, at least not alone. However, get a pack of lemmings together and they’ll pretty much gamble on anything, up to and including jumping off of a cliff.

What is a Joint Venture in the Context of Real Estate Investing?

A JV agreement is a contract between two or more parties that divides up the investment, the responsibilities, and the profits or losses. You know, an agreement. It’s for those entering into a one-time deal. You aren’t wining and dining here. You’re in and out fast for a quick and tidy profit.

Parties usually form a new company to own and operate an investment if it is a long-term deal. For short-term investments, a Joint Venture does have some great benefits.

Example of Joint Venture Agreements in Real Life

This is a common JV Agreement scenario for real estate investors. My friend Randy purchased a property with his LLC that he intended to restore and then sell for a profit. Then he hired a contractor, our buddy Johnny.

Together, they agreed that Randy would reimburse Johnny his expenses and they would share the profits from the sale, in accordance with the terms of the JV agreement they’ve drafted.

By the way, you can add a contractor to your S Corporation or LLC in order to share profits, but that can be a bad idea. If you don’t want to give up a permanent piece of your company (and there are a lot or reasons why you might not want to do that) a JV agreement will bridge can bridge the gap without giving away your firstborn. It is a collaborative contract between companies, rather than a permanent marriage.

By creating a venture-specific LLC, all of the parties acquire some much-needed liability protection.
If you find that the arrangement is worth keeping to explore new opportunities, there is no reason why you can’t modify the terms.

Who knows? Maybe this short-term fling will become the real thing.

Your new LLC will also isolate the JV’s capital and resources in the event of litigation. Your other companies are safe from being liable for this new one.

Is a Joint Venture Right For Me?

As in so many things finance related, your decision really depends on the size of the deal. If you are pushing millions around, the added liability protection of an LLC is essential. If you’re just puttering around with tens of thousands of dollars, as was often the case between Randy and Johnny, that JV agreement is the cheaper option.

JVs work well where the goal is quick cash and in cases where the partners do not qualify for financing. They also let you partner with companies that have different skills than you. The investor/contractor arrangement like Randy and Johnny’s is a perfect match for quick flips on real estate.

In the end, no matter how short-term a deal is, you’re going to have to work with the person you go into business with for longer than you think. Whether starting a new company or signing a Joint Venture, find people who you trust and who you like to work with. Make sure you understand Joint Venture liability. Forge business relationships that have potential for growth and leave the door open for more collaboration. A good deal is an awful thing to waste.

Do you still have questions about your Joint Venture or LLC? Take our quick investor quiz and we'll help you find the solution that is best for your situation.

Joint Venture Agreements For Real Estate Investors

If you've been in the real estate business for awhile now, the chances are extremely high that you've entered a Joint Venture Agreement at least once.
Right after the recession hit, Joint Venture Agreements became all the rage. Mainly because lenders began imposing loan-to-value ratios as high as 70%. Not many real estate investors are willing to put that much on the line, not by themselves anyway!
But maybe you don't know what a Joint Venture Agreement is? Whether you do or don't this article might can teach you something new. Let's begin.

What Is a Joint Venture Agreement?

A JV Agreement is a contract between two or more parties. It outlines who is providing what. (Money, services, credit, etc.). It also outlines what the parties responsibility and authority are, how decisions will be made, how profits/losses are to be shared, and other venture-specific terms.
A joint venture agreement is typically used by companies or individuals (like real estate investors) who are entering into a onetime project, investment, or business opportunity.
Usually the two parties will form a new company such as an LLC to conduct operations or to own the investment. This is usually the recommended path if the parties intend to cooperate over the long term.
However, if the opportunity between the parties is a one-time venture where the parties intend to cease working together once the agreement or deal is completed, a joint venture agreement may be an excellent option.

Typical Joint Venture Scenario For Investors

For example, consider a common joint venture agreement scenario used by real estate investors, and let's say you're the real estate investor. You purchase a property in your LLC or s-corporation and intend to rehab and then sell the property for a profit.
Then you, the real estate investor, finds a contractor to conduct the rehab. Your arrangement with the contractor is that the contractor will be reimbursed their expenses and costs and is then paid a share of the profits from the sale of the property following the rehab.
In this scenario, the joint venture agreement works well as both you and the contractor can outline the responsibilities and how profits/losses will be shared following the sale of the property.
It is possible to have the contractor added to your s-corporation or LLC in order to share in profits. But that could be bad for you.
If you did add the contractor to your s-corporation or LLC, that contractor would permanently be an owner of your company. Which is bad because you will likely use that company for other properties and investments where the contractor is not involved.
As a result, a JV Agreement  between your company that owns the property and the contractors construction company that will complete the construction work is preferred.
A JV agreement lets each party keep control and ownership of their own company while they divide profits and responsibility on the project being completed together.

Why You Should Use a Joint Venture Specific LLC For My Assets

While a new company is not required when entering into a joint venture agreement, many joint venture Agreements benefit from having a joint venture-specific LLC that is created just for the purpose of the joint venture agreement.
This venture-specific LLC is great in situations such as:

A $1M deal or venture could be done with a joint venture Agreement alone, however, you would be well advised to create a new entity as part of the JV Agreement. On the other hand, if the venture is only a matter of tens of thousands of dollars, the costs of a new entity may outweigh the benefits of a separate LLC for the venture.

Enter Agreements With Joint Ventures Wisely

Joint venture Agreements are great when you need cash now or can't qualify for financing. They also enable you to work with someone who can bring something to the table you can't. But in any case, always make sure you carefully consider everything before entering into one.
As always, if you have any questions about this article please do not hesitate to ask. If you're wondering whether a joint venture arrangement is right for you or have questions about setting up a venture-specific LLC, contact us today.

What Makes a Series LLC Different from an LLC?

Have you heard about the Series LLC? It's basically a newer and better version of the normal LLC. Now you might be wondering, what makes the Series LLC different from a normal LLC? Hint: if you have children, you'll catch on fast.

The Series LLC works as if it's a parent-child structure. At the top you have the parent, the Series LLC. It'll have an EIN number and an official formation document stating what state you formed the Series LLC in.

Below the Series LLC you have the series themselves. You'll have series A, series B, etc. The series are what I refer to as the children because they all come from the original Series LLC parent. In this way the Series LLC looks like a family tree.

A Series LLC Can Grow Forever

A Series LLC is just like a parent, it can have as many children as it wants, unlike a normal LLC. And this might surprise you, but just like in real life, these children don't cost any extra money to create. That's true before AND after they're born.

Whereas, if you want to put 10 properties in 10 normal LLCs, you'd have to pay state filing fees for each LLC you form.

Each series in a Series LLC is going to be treated for liability purposes as if it were its own LLC. You can take advantage of this by putting one property in each series/child.

This means if you ever have a lawsuit resulting in some type of action against a house belonging to series A, it won't affect the houses held in series B or C, etc.

I forgot to mention, do you like doing joint ventures? The Series LLC is perfect for doing joint ventures!

For example, series C could be a joint venture agreement with as many people as you would like without involving the other series. It'll have its own EIN number, tax return and its own operating agreement to conduct the business of your JV agreement.

The Series LLC Is More Efficient Than a Traditional LLC

The Series LLC is the next evolution of the normal LLC. Compared to a normal LLC, A Series LLC is:

And best of all, you'll be able to file each one of your series (no matter how many you have) on the same tax return. This means thousands of dollars a year in tax preparation savings for you.

If you have any questions about forming a Series LLC I'd be happy to answer them in the comments below. Learn more about how a Series LLC can help you expand your business. If you're ready to form yours, contact us today.

Doing Joint Venture Real Estate Deals With An LLC

A Joint Venture is an efficient way to pool money, skills and other resources to buy properties. Whenever you do a Joint Venture you'll almost always use a Joint Venture LLC. We'll explain why in this article.

Not only will you pay less taxes on your profits when you use an LLC, but you'll also be protected from lawsuits because the property will be owned by an LLC.

So if anybody were to sue you or your partner, they can't get to your assets.

But using an LLC doesn't guarantee the success of your Joint Venture. Read on ...

Real-Life Real Estate Joint Venture Scenario

Here's a case study. Say you and your friend both own an LLC. Then you both decide to use that LLC for a Joint Venture and buy a house.

Everything is going great, until your friend gets sued. Eventually he or she loses the lawsuit. As a result, a "charging order" is placed against all of your friend's assets. A charging order is something creditors use to collect someones debt. Since you both chose to use an LLC for your Joint Venture, the creditors will be entitled to your friend's share of the profits. Oops!

Now your friend probably won't want to distribute any money from the LLC. Which means you won't be able to get any of your-hard earned money. (As partners, you both have to agree to distribute the money!)

The Best Way To Handle Joint Ventures for Real Estate

This wouldn't have been the case if you both used your personal LLCs to do the Joint Venture.

That might sound confusing, but this is how it works: You and someone else each have your own personal LLC. Then you both use your personal LLCs to become members of another LLC as part of a Joint Venture. That's your Joint Venture LLC.

By being members of an LLC using your personal limited liability companies you'll be able to distribute your share of the money (to your personal LLC) without forcing your partner to pay off their creditors. This way you're both happy and your relationship isn't soured.

I'd be glad to answer any questions you have about using LLCs to do Joint Venture in the comments below. Or you can start with our investor quiz and we'll help you figure out the next step.

Making Your Real Estate Dream Team

Believe it or not, making your real estate dream team only requires three people. You need an attorney, a CPA and a deal maker. A deal maker is either a real estate agent or a wholesaler. For the attorney and the CPA, don't go cheap. A good attorney is worth their weight in gold.

You're investing thousands of dollars. Make sure the deal you're working on is going to be protected. As an attorney, that's what I do. I make sure your company structure, as well as the deal itself is going to flow.

My job is to make sure you're not going to lose your money based upon a legal technicality. Or some other event that's going to cause you a legal headache.

A CPA is also worth its weight in gold in terms of tax savings. Especially after your company gets off the ground a little bit, you're going to want to hire a CPA who's also a real estate investor. A CPA is going to know exactly how to structure the tax savings that's gonna save you the most amount of money.

The Cost Of Your Real Estate Dream Team

Now you might think, wow, I have to pay these people a lot of money for a bunch of years and that's going to cost me a ton. Well maybe not. If you're doing a repeatable kind of business, then it's gonna be the same types of legal documents, as well as the same types of taxation that's going to occur every year. Now there's going to be some minor tweaks here and there to the legalities as well as the tax structure.

But any generic CPA at that point is going to be able to look at the model used by that attorney and by the other CPA that's a specialist and be able to tell you where you're gonna need to tweak a tax return. That will mean long term savings for you.

As far as the wholesaler or your real estate agent goes, these are really the crux of your business. Because those are the people that are going to actually be the ones making you money.

Don't Cheap Out On Your Real Estate Dream Team

As a real estate investor myself, I pay my team well. After all, what they really want to do from their position is cultivate a few number of select clients (hopefully you) to be able to build up their business.

This benefits all parties involved because now they don't have to market their business out to hundreds of people and deal with all of the phone calls and headaches from that. And you get to make consistent profits.

If they could just have a few clients and be able to buy all of the properties it makes their life a lot easier. This also means that you're competing against much less people, in terms of who's negotiating after the fact about what that particular deal is going to be worth.

This increases your leverage in being able to make more money working with those people. Now you might not be able to have enough money to be able to keep a wholesaler exclusive to yourself. Which is fine because...

The Series LLC Comes Into Play

Think about the way you can JV (joint venture) with other partners in bringing in other money to investing in a particular deal. If you combine that JV strategy with a series LLC, you're able to get into more deals at no additional cost.

Remember, the series LLC structure allows you to create as many series as you want. And each one of those series is treated as its own LLC.
That means you can bring in their own JV partner. With its own EIN member, operating agreement, everything that you would do in a traditional LLC. And bringing the money there, the Series LLC doesn't require you to have any additional filing.

So you can literally create a new series on your desktop with a new operating agreement bringing in that JV money and closing the deal with that wholesaler before anyone else is gonna be able to do it.

I hope you found the above information useful. And remember, when it comes to making your real estate dream team, don't cheap! Especially on the CPA.