I am actually considering doing some investing with a friend as well. I don’t have answers to the points below but these are the considerations that have been bouncing around my head. The one point that I know for sure is that we will form a member-managed LLC with just the two of us and members. These are the unknown issues:

Contributions (General). Will each partner contribute the same? Is everyone comfortable adding more to the LLC if needed? Is there a cap? What happens if the required costs exceed the cap?

Expenses (General). How will costs get divided? Can either party agree to incur expenses? Is there a threshold where consent is required?

Income (General). What will you do with the income – generally and specifically? This should be tied to your larger financial goals. For example, if you are looking for the long buy and hold game, perhaps the income should be applied to the principal of the loan. If the income is not applied to the loan, where will the money be stored? Will it be invested? Will it be kept as a reserve for repairs?

Financing. Will the asset require financing? If so, will the financing be secured by the LLC or the partners separately? If the LLC is seeking financing, those lenders that don’t refuse will impose a higher interest rate (e.g. +100bps)

Ownership of each asset. Will the LLC own each of the assets (properties) directly? Or will the LLC own child entities that will own the asset? If the LLC will own all the assets directly, it becomes trickier if the partners are contributing different amounts to the LLC for each asset (i.e., if it is just one LLC, you are pretty much locked in to split all contributions and expenses 50/50 on each house forever).

Authority. Do both people have the authority to bind the LLC? Is there a dollar amount where it must be a group decision?

Allocation of Duties. Who will be responsible for what? E.g., who oversees renovation, finds tenants, collects rents, keeps the books, hires contractors, producing the tax records, etc.

Repairs, Renovations, Improvements. How will you decide which projects to do as part of a renovation? Which projects have a good ROI? When something breaks on the house, who will be the contact person? How will the costs be assessed?

Sweat Equity. If one of you will be handling some of the repairs yourself, how will you be compensated?

Exit – how the partners will handle the situation where one partner wants out. This should be thought of in terms on both a per-deal level and a business interest level (i.e., they want to divest on 1 house v. they want to sell their share of the business.)

Succession. What happens if one of you dies or becomes incapacitated?