Putting together a successful Florida real estate portfolio can not only set you up for life, but it can build generational wealth for your family. Right now, real estate in Florida remains the hottest market in the country making for some serious competition among investors. The quickest and surest way to fall behind the competition is disorganization and miscommunication among members or partners in your LLC.
We just touched on the actual process of forming your LLC. It’s important to be thorough and follow those steps to get off the ground, but we also mentioned an Operating Agreement which is technically an optional step. From our perspective, an Operating Agreement is required if you want the full advantages of an LLC and the future growth potential of your hard work.
Defining roles and responsibilities
First and foremost, an Operating Agreement provides clarity about who plays what role in your organization. If you have multiple partners, it might be advisable to divvy up responsibilities so nobody ends up overwhelmed.
For instance, certain managers/representatives of the LLC may be permitted to enter into binding agreements on behalf of the LLC while others may have more of a background role in managing money and taxes. Failure to define roles can lead to confusion and disputes down the line. Protecting yourself today can help you secure everything you’ve worked so hard on already.
Clarify financial interests
Just as important as the roles of each member will be the financial interests of each. Don’t assume that each member (or the courts) will divvy up ownership or profits based on what each member put into the organization.
Within your Operating Agreement, you should specifically lay out what percent of the LLC is owned by each member along with what percentage of profits or losses will be taken on by each member.
Setup succession plans
Each member now knows what their role is and how much financial interest they have in the organization, but what happens to the properties when a member or members depart or pass away? In this way, an Operating Agreement can work hand-in-hand with your estate plan.
This is simple to define when there is one person (you) managing the LLC, but if you set up the LLC for your investments and bring on other authorized representatives to assist in the management of those investments then it’s important to make sure your properties don’t get lost in the shuffle. When you buy real estate to build generational wealth, your Operating Agreement can control how the properties are handled immediately after your death.
It’s important to note that your Operating Agreement can’t officially pass on ownership of your properties/LLC. However, it can put someone in place who can manage them until your estate is sorted out and a new owner is officially put in place (which can be the same person(s) you assign to manage the property through your Operating Agreement).
Your Operating Agreement should be a bible of sorts for your LLC. It should be readily available and easy to understand for every member. When certain circumstances arise, this agreement can serve as a catch-all for challenges to come. At Bryant Taylor Law, we can help you formulate, review, and file your Operating Agreement. It’s important to make sure every piece of the agreement has legal standing so your hard work isn’t exposed to unnecessary risk in the future. Contact our office today to set up a consultation.
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