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.