partnering with my brother

5 Replies

Just a little background info. I own two duplexes and I'm a teacher in New York. My brother has $30,000 but horrible credit and no W-2 income so he can obtain any type of loan. He's works construction on the side but very sporadically. We are looking to do a deal together, but I am unsure of how to do that. My credit is very good (825) but at this point, i can't match his 30k. we are looking at 130000 duplexes so 30k should be all we need for the down payment. I have some money for closing, reserves and immediate maintance. I was going to call my lawyer to see what he'd suggest but figured I'd ask you guys first. I trust my brother and we are very close. if love to help him get his first deal somehow. I'm not against doing nothing with him but just curious as to what all your creative minds could think of. Thanks
correction: my brother can't get a loan..

@Brian Zaug why does he have horrible credit?  

Since you trust him, and already have two duplexes under your belt, if you buy something together, you should be the one in charge of finances, and day-to-day management(if you self manage) to begin with.   

Also, for the duplex you're looking at, have a clear operating agreement and everything be laid out on the table before you go in on the deal together.  As someone who just left a family venture that failed due to different goals, and lack of communication, make sure you both know what you expect from each other from the start.

Scott Wolf

 Thanks for that info Scott.  My brother is younger and he just doesn't have credit.  He has no cc cards, loans or anything.  He's just getting started with his life at 31...lol...Better late than never I guess.  I am a bit hesitant to go into a deal with him but I do trust him and he does add some value with his handywork skills. 

Abel trusted Cain...just sayin. While I'm sure your situation is not as biblically complex, I've often seen that business and family don't mix well. It's great when it works, not so great when it doesn't and impacts the entire brood, whereas an arm's length business relationship might not have such a broad reaching impact on others not directly involved. At the very least, it's gonna make great Thanksgiving dinner conversation if the venture goes south.

Business-wise, this is straightforward: you provide the experience & credit (mortgage), he provides the down payment. You have to decide how much each part is worth (I.e. do you split the profits 50/50, 60/40, etc).

The rest gets more involved, but not necessarily difficult. Form some type of legal partnership with a WRITTEN partnership agreement, very detailed, spelling out who is responsible for what (who’s going to do the management, who will place tenants, who will handle the books, what if the business needs additional capital injection down the road, who decides when & how to sell, etc), and who is entitled to what (how do you split the cash profit, how do you split the equity gains, how do you split the tax write off, what happens in the event of a sale, what if one of you wants to live in the property, etc).

Make it legal & official - MORE COMMUNICATION & DETAIL IS BETTER!!!!! Can not stress that enough.
You never want to be in a position where there is ambiguity over any foreseeable point, b/c you will each interpret the ambiguity in you own favour, and then conflict arrives. Get this out of the way early on, and you will prevent lots of problems from ever arising.

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