Today’s question comes from Khayla and Khayla says, hi, Marco, I’m Khayla. I’m a huge fan of your podcast. I’ve listened to all the episodes so far. Can’t wait for the next ones to drop this week. And I have learned so much. Here’s my question. My best friend and I are both interested in real estate. We have similar wealth, longterm, and investment goals and are considering going at this as a team. Our thinking is that we can combine resources such as capital to purchase our first few properties and accelerate our success. We are fully aware that doing this without a plan could get messy. So we’re hoping to gain some knowledge from you about how to educate and position ourselves for success here. For example, should we set up a business entity and find separate attorneys to represent us? How can we start to think about splitting profit? What legal factors should we consider? I realize this is a broad question that requires a specific understanding of our unique situations, but what we’re really looking for is a starting point for us to gain more knowledge that will help us ultimately make the decision about whether or not doing this as a team would work for us. We only want to go about it this way, if it makes sense. So any information you have to offer would be greatly appreciated.
Thank you so much for your time. Khayla,
Kayla. Great question. And thank you for taking the time to write in. So I’ve been trying to keep these Ask Marco episodes a little shorter than I normally have been recording. I’ve always had the goal of keeping them from 5 to 10 minutes and I ended up recording as much as 12 to 15.
So with your question, I think I can keep it short. So I think this is great that you’re looking to partner with someone who is a friend and hopefully someone that you trust very well. And if this can help springboard you to real estate investing success, great work together, especially if you support each other and you work with each other like accountability partners to keep the ball rolling forward, because you’ll probably get more done in a shorter period of time, just knowing that you’re both there for each other and you support each other and you’re encouraging each other, not just in taking action, but also educating yourselves. So I think this is great. Now there’s a saying that the hardest ship to sail is a partnership. So you’ll of course want to do this the right way and think about it well and plan in advance.
And so your comment about having an attorney is probably a very smart idea in the beginning because what you’ll probably end up doing is forming a company like a limited liability company or LLC. And you’re both member partners in that. So that essentially your partnership, two different members automatically form a partnership and the entity you would use could use, I shouldn’t say you would use but would be an LLC. That’s typically the simplest structure, the easiest formation. It provides you a lot of simplicity and flexibility. Now, of course, you can get complex and it’s outside of the scope of this conversation, like setting up a C Corp, but it doesn’t sound like that is ultimately the best tool or entity to use. But again, I’m not an attorney and not giving you legal advice. I just going off of what I’ve learned over the years in my own personal experience, but a great starting point from an educational perspective would be to pick up a book.
You can find this on Amazon, it’ll be shipped to you the next day. It’s very inexpensive from my friend Garrett Sutton. And he wrote a book called How to Use Limited Liability Companies and Limited Partnerships. the subtitle is Getting the Most Out of Your Legal Structure and it’s now in its fifth edition. Quincy incidentally. I’m actually interviewing Garrett Sutton again tomorrow morning. So timely question, but the book really simplifies what you should know about the different entity structures and how they work and the formalities related to them. It’s more of the technical side of your question, but if you read this or a book like this, and you understand the parts of the puzzle, the pieces of the puzzle, then you will be able to ask better questions and you’ll see how it’ll all come together and pretty quickly, but this is all about the legal structure.
And this is kind of the starting point is how do you and your friend get together formalize what you want to do? So you have your entity and then you have what is essentially your charter or your operating agreement. And that’s what it would be with a limited liability company as an operating agreement where you guys both have the terms and the charter for the company, as far as what you can and can’t do and how you get in and out of this company and how you split profits or how you share profits or what you keep in versus what you take out. So you’re basically setting out to create all the rules that you guys are gonna follow in your investment journey. And this is really the starting point. Just have an agreement and just make sure it’s as buttoned up as possible and decide how you’re going to invest together. What you’re going to invest in together, how much capital you’re both putting up, who’s doing what work, just be as clear as possible in defining every part of that business. And an attorney can certainly help you do this. Now it’s not something that’s going to take you months or weeks. You can get this done pretty quickly, but it’s just how you start and formalize what you’re doing beyond that. I don’t know what else you asked me here that you know, that wouldn’t be covered in just educating yourself with a book like that, listening to some podcasts, not necessarily mine, but I do cover bits and pieces of this, but I’m going to try and ask Garrett tomorrow morning, this question as well. So maybe stay tuned for that. I’ll try and get that episode out as early as next week, if possible. All right. Well, I hope that answers your question.
It was a broad question, but you were looking for the starting point. So that’s your starting point. And if you have a follow-up question to this, maybe let me know, and I will try to get back to you on it, but listen to Garret’s episode and maybe pick up his book and read that because I think that’ll be helpful for you.
Alright, thanks for the question. And, that’s it for today. If you have a question about investing or finance or just real estate specifically, just shoot it on over to me at passiverealestateinvesting.com.
I appreciate you listening to the show. We will see you guys on our next episode.
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