While the buyer profile for many ranch properties has remained consistent since Live Water Properties’ inception in 2001, one interesting pattern in key markets has emerged. Since the widely-recognized peak of the Rocky Mountain ranch market in 2007, group acquisitions have represented a more significant portion of the buyer pool. Such buyers come to us in the form of multi-generational family groups, like-minded anglers or hunters from various metropolitan areas around the US, and professional groups (i.e. attorneys and surgeons) looking for a private location to host education retreats in amenity-rich locations.
In some instances, groups form based on a complimentary skill set, not only cash equity. One such example is a group interested in Montana fishing properties who are involving a friend in the search efforts and purchase based on his extensive experience with habitat improvement and stream restoration. In this case, inviting a prospective member based on his professional experience and sweat equity is as critical to the group as his financial investment.
Reasons for partnering with friends or family are varied based on each group’s goals and interests. One member of an investment group offers the following thoughts on his reason for seeking partners on a recent Colorado ranch acquisition. “Acquiring the property with several like-minded families just made the most sense for us on several levels. It allowed us to purchase a property that we might not otherwise have considered on our own, and to make some necessary updates and improvements post-purchase without exceeding the budget for any one of us. We are now considering other similar acquisitions with some of the same partners to further expand on our access to great recreational amenities since all of our capital is not tied to one deal.”
When forming an entity, we advise that you speak with your attorney and CPA to understand the benefits of group ranch ownership. Denver-based attorney with Messner Reeves, Jason Largey, offers the following as it relates to forming a Limited Liability Company for such acquisitions.
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For a co-owned, recreational property, our view is that a limited liability company (LLC) or limited liability partnership (LLP) is the most sound ownership vehicle. Functionally, the LLC and LLP entity works in the same way and provides like liability protection. For ease of use, we will refer to the two entity structures collectively as an LLC.
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A sophisticated property owner will have only the property, and no other substantial assets, in the name of the LLC. If, for example, a hiker or fisherman (whether invited or uninvited) were to be seriously hurt on the property, and the damages are substantial, the greatest loss that could be suffered would be the total assets of the LLC. While you may lose the property to cover such damages, other assets (other homes, retirement funds, investments, wages, etc.) would likely be beyond the reach of the plaintiff’s recovery.
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Additionally, a well-designed Operating Agreement (the document that controls the operations of an LLC) can address all issues that arise in duel property ownership. For example, the owners can agree before purchasing how costs will be allocated, the terms of use, the terms of any future sale, taxing issues, ownership percentages, etc. In our experience, dictating these terms prior to joint ownership alleviates many future issues. Purchasing through an LLC also provides additional privacy protection to the individual owners. Any searches of property records would produce only the name of the entity owner, and not the individual owners of the LLC.
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Fees associated with creating and maintaining an LLC are relatively small and limited as compared to the overall amount spent on a property purchase. The protections provided by owning through a limited liability entity is inexpensive and effective insurance against some catastrophic event and the potential negative impacts it can have on an owner’s complete portfolio of assets.
Live Water Properties has extensive experience representing group buyers and partnerships and understands the dynamics involved when searching for an ideal retreat to satisfy the individual amenities and attributes desired by multiple partners. It is satisfying to help clients find the right property and hear the stories of great experiences shared by groups after a successful closing. While the concept of acquiring a ranch property with friends and/or family is not for everyone it is a great way to leverage your available resources to purchase a ranch that otherwise be beyond your personal means, share the experience with like-minded outdoor enthusiasts and be in a position to consider other holdings to diversify your land portfolio. For more information and help with your search for the ideal recreational ranch retreat please contact Brian Hartley.
