Partnering On A House
A friend of mine who Ive been close as brothers with for about 15 years - has gone through pre-med and is starting his 3 year residency. He has heard me say that renting is throwing money away - and I had advised him to always try to buy something right out of the box.
For the next three years - he will be making from 30k-55k per year as a dr in residency. I trust him and his family has money )dad owns a few practices), Anyways what Im thinkin of doing - is putting up 1/2 or all of his down on a house/condo letting him pay the mort. for a few years and then if he wants to get out either we sell and split any appreciation, I buy out his portion and retain it for renting, or we continue to hold it. Im thinking we would need to draw up an agreement or llc between us to keep things clear. Any thoughts or cautions about this, I was thinking either this or just loaning him the $$ straight up and securing it with the property but then I would be missing out on potential appreciation.
And if the house decreases in value ssay in a cooling down period over the next few years for some reason, and he wants out should I make him pay his share of the loss difference, or let him walk and be happy he paid the mort on it for 3 years?
I didnt know which forum to put this in feel free to move it if its in the wrong one admin.. Thanks.
Dez 
How about you buying a property and lease optioning it to your friend? You can draw up the papers, and keep everything very formal. if the property appreciates, he can excercise the option and purchase, if not, he can walk and you can lease option it to someone else?
I definitely think that to cover both your a$$es, you would want to get every aspect of the partnership in writing. Including what to do when one wants out, the terms under which you are forming the partnership (i.e who is paying what up front, what you are doing with profits/losses, etc. - how are you splitting everything?) Personally, I have a partnership agreement with a friend on a property in Florida. (Not an LLC or other type of entity. Just a straight up partnership on paper.) We both hold 50% interest in the partnership. This 50% represents any money that we have put in to the partnership so far (i.e. initial capital contributions such as the down payment paid on the condo we own together, any monthly profits that have accumulated in our joint chk account, etc.) Whether the house has appreciated or depreciated, I think that to buy the other partner out, all that one of us has to do is buy out the accrued 50% interest amount. I could be wrong... but that is how we did it.
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On 2004-03-18 23:35, elf2588 wrote:
I definitely think that to cover both your a$$es, you would want to get every aspect of the partnership in writing. Including what to do when one wants out, the terms under which you are forming the partnership (i.e who is paying what up front, what you are doing with profits/losses, etc. - how are you splitting everything?) Personally, I have a partnership agreement with a friend on a property in Florida. (Not an LLC or other type of entity. Just a straight up partnership on paper.) We both hold 50% interest in the partnership. This 50% represents any money that we have put in to the partnership so far (i.e. initial capital contributions such as the down payment paid on the condo we own together, any monthly profits that have accumulated in our joint chk account, etc.) Whether the house has appreciated or depreciated, I think that to buy the other partner out, all that one of us has to do is buy out the accrued 50% interest amount. I could be wrong... but that is how we did it.
Thanks for the replies! When you say straight partership on paper - the mort and the title have both of your names as co owners/borrowers? And then an agreement between you two on how things will be split up?
I would be sure that he understands the difference between owning & renting--If he has only rented before, he may not realize that he has some responsibility for maintaing the property, either personally or by hiring someone to do it.
I know people who 'don't want to be bothered' by paying bills for water, sewer, electrical, etc. let alone mowing a lawn or fixing a leaky faucet.
At least if you know where he's coming from and what to expect from him in terms of time & management on the property, you'll be entering into a partnership with the knowledge that he may have very little time and no practical experience.
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Good luck!
Thanks for the replies! When you say straight partership on paper - the mort and the title have both of your names as co owners/borrowers? And then an agreement between you two on how things will be split up?
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Hi,
Yes, that is exactly how we did it. We are tenants in common on the note and then we have a separate agreement re: the partnership that we had notarized. (I know I know it's not an official entity or anything like that, but again, that is how we did it.)
Hi,
I found this article that was posted on feb. 11. Not sure if I can post URL's yet so if this doesn't work, do an article search for "Partnerships for Real Estate Investing." Great advice herein...
In doing my nightly due-diligence reading up on the site articles (goal is at least 30 min/ day as part of my education)
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=509
Nice article - Im going to be looking at some places this week/weekend - will post back. Im running into some questions for myself here - he is a good friend - Im a little confused if we should:
Go in on it 50/50 I put down the dep he pays the mort at the end of three years if he wants to sell should I deduct 1/2 of the down against any appreciation that may have occured?
Thanks for the time elf
Another issue is the rate we can get the place at - Im assming if I went in on it myself Id get a higher rate (everything else equal) b/c they will view it as an investment property (being that I already own a house) does anyone know if thats the same case with a partnership or LLC as well?
:-?
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some questions for myself here - he is a good friend - Im a little confused if we should:
Go in on it 50/50 I put down the dep he pays the mort at the end of three years if he wants to sell should I deduct 1/2 of the down against any appreciation that may have occured?
Hmmm, I think it all depends on what you write into the agreement, as to what happens if one partner wants to buy the other out. You might want to discuss with the potential partner, as well as possibly a lawyer, on what to put into the agreement. My partner and I just did straight up 50/50, across the board, splitting down, payments, income, expense, everything by half. You have a slightly different proposed arrangement. Sorry I couldn't help out more. Good luck!