Right now we’re going to talk about real estate partnerships.
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Let’s talk a little bit about partnering up for real estate purchases and business partners. What we’ve talked about in the previous program is how do I get started? A lot of times I think parents want to help kids get started as adults into the investment world, and you’ve got to take a look at that relationship and see if it will package well into an LLC or a partnership.
Bob Nelson: Well, first of all, partnerships and real estate are really all over the place. How about husband? Wife? How about partner and partner? And at that particular point it’s gone into just naturally and normally. It’s where you get to unrelated parties or parties that are unrelated enough that they really are decided to match their financial capacity, their property management skill capacity, and they’re willing to take the risk of joint ownership on a piece of property.
Marcia Edwards: Bob, I have a question. You see partnerships a lot more frequently than I do, but I’m interested in knowing is, is there a time when you should just be the lender instead of the partner as a principal in the transaction? For example, that parent, child, adult child relationship. Maybe it’s better not to go full partnership, or is it usually better to go into the partnership with your name on it?
Bob Nelson: It depends on how you feel. If you want to have a vote on everything that happens, then you’re probably going to go into some form of joint ownership, most likely a limited liability company but that’s between you and your attorney to manage the risk issues of real estate ownership, as well as your CPA managing the tax consequence of joint ownership and real estate. But in some instances it would be better… If you don’t want to have your name on the mortgage.
I use the term mortgage lightly, because it’s technically a trust date. If you don’t want to have your name on the debt instrument that a lender could come after you in the event that there is some type of a shortfall of some sort, if you don’t want to have your name there, then become the lender that would lend your son or daughter capital that they would use as a down payment to own a piece of a rental property.
Marcia Edwards: I think the most important thing is to do it intentionally, not to just say, “Let’s do this thing and start the process of a purchase.” Once you’re wrapped up, it’s unbundling that’s so difficult. So you’ve got to play out all the scenarios and take some professional counsel, even when it’s family.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.