If more than one person wanted to invest in a property to rent out, what is the best sort of contract and/or agreement?
If two or more people want to invest in a property to rent out, what is the best sort of contract and/or agreement?Disclaimer: I’m not a lawyer, so this isn’t legal advice. For that, please consult with a lawyer.There are at least two issues to consider:OwnershipHow will the ownership be handled? At its most basic, the investors could each be an owner. And there, you get into other issues: Joint tenants (in which each would have an undivided interest) or tenants in common (in which each would have a defined interest). As a non-lawyer, I’d recommend tenants in common. But that really depends on the situations of the various parties. There might be times (particularly if it’s you and your spouse) where it would make more sense to be joint tenants or tenants in the entirety.A variation on that is that the property could be held by a trust in which all investors are beneficiaries. There’s no need (as there’s no need with tenants in common, above) that all the investors put in the same amount of money or have equal ownership shares. In the case of a trust (in particular, a land trust), the trustee would be the owner, but would operate at the direction of the beneficiaries. There are certain privacy and financial advantages to a trust.Another option is for the owners to be members of an LLC. The LLC would own the property. Again, as with a trust, different investors could own different percentages of the LLC. (My guess is that in situations similar to what you posed, more people choose an LLC or land trust. But that doesn’t necessarily make it the right choice, either in general or for you.)While I’d recommend a trust or an LLC (and, again, I’m not a lawyer), the “right” answer depends on a number of factors.One thing I definitely would not recommend is a partnership. That’s a legal structure, too. But it’s not what you want. (It can make you liable for anything your partner does, and provides no protection if something goes wrong.)Responsibilities/Division of Expenses and ProfitsSome of the entities above—the LLC and land trust, in particular—can be structured to address responsibility for expenses and who gets what profits. Still, you need a document beyond the formation documents to best specify this. Will each investor put in an equal amount? Will each investor be entitle to an equal share of the profits? How is management handled? If there are losses, who’s responsible for paying them? How is decided when to sell the property? Who gets what share of the profits upon sale (assuming there are profits)?These and many other questions have to be answered in some sort of binding agreement.So those are the items to consider:Legal structureResponsibilities and division of expenses and profits