My mother and I purchased a property in 2005. She put down $40000 for 25% and I as the “working partner” for 75%

Question

We bought the property for $163,000 and it is was valued/appraised at $900,000 in 2017. I am the working partner and designed, renovated and work/live in the property everyday to add value. I would like to sell the property for about $1,100,000. My mother thinks she deserves the $40,000 off the top of the sale along with 25% of the profits, is this normal for a real estate investment? I assumed her $40,000 was equal to the 25% of the profit of the sale alone... we did sign a LLC members agreement for 25% and 75% for me as the working member, but I’m afraid she might get what she wants. What is the norm for LLC real estate agreements?

Richard Sternberg · Answer

It would be useful to have a lawyer read the agreement you signed. One of the benefits of the LLC form of business entity is its flexibility in capitalization and control. Absent provisions to the contrary, she is either a lender or an owner, not both with the same money. If she is a lender, she is paid first the amount she lent plus the agreed interest, and then nothing else. If she is an owner, she is paid the percentage of her ownership. Absent contractual language to the contrary, gains follow losses, so the percentage of the gains is the same as the percentage she would have lost had the business experienced a loss. A simple consult with a brief review of the agreements by a lawyer retained by the LLC might avoid a family fight.

Q: My mother and I purchased a property in 2005. She put down $40000 for 25% and I as the “working partner” for 75%