Have Investors Lined Up, NOW WHAT?
Situation in a nut shell:
I own a construction company who primarily does remodel work in residential. I have been looking into rehabbing properties for a while now (2 years) to add some profit to the company. I have finnally locked down 3 investors who will be willing to invest roughly $100,000 a piece. So I should have $300k sitting in a bank account shortly here. (Will finally be able to compete with the all CASH deals!) How do I go about setting this up legally? I was definately going to set it up seperately from my business (i.e. accounting & bank accounts) yet my business will be doing most of the work in the houses, with in-house employees. Do I set up an LLC? Another question I had was can I write off my employees labor costs against the profit in the final sale? Also, what is a fair return on investment % that a $100K investor should get after 1 year. In some rough calculations I came up with 16%. Any comments on this would help out greatly.
I'd run the LLC question by your accountant for tax implications and our attorney for liability questions. I recently had this discussion with both and decided to go with an LLC. Any labor and materials used on your investment property can be deducted to achieve your net profit, ask your CPA on the best way to set up your books separate from your other company. You will need a separate checking account, etc...
As far as the 16%, I think that sounds fair, I guess it is up to your investors. the head of our local REI club offers 12-15% depending on the amount. How did you line up the investors? Advertising or business aquaintances?
Good luck!
Actually, all of the investors are family and one is friends of the family....but it took alot of convincing, and two years of research to finnally get them all on board....Thanks for the advice and I will get a hold of my tax guy...I allready have a call in to the lawyer.