Looking To Buy a Property with my lady.

25 Replies

So guys, I'm looking to purchase an AirBnb property with my lady. I'm in the Atlanta area and I'm hearing that there are really good returns here. People are telling me that I shouldn't do it, because although this wonderful lady has an astute business mind and heart full of ambition, she's not my wife and this can be dangerous. What are your thoughts? Should I go ahead and quit the idea, or buy this property under an entity to protect myself.

It will just be a partnership, so treat it that way @Tysean Jackson . Whether you own as tenants in common with % listed, or an LLC, put everything in writing with a JV agreement or strong Op Agreement.

If you 'break up' - there is no set recourse for real property.  It is simply a division of property per written agreements.    

Tysean,

If she is that good, marry her!

I wouldn't give up on my dreams because someone said it could be dangerous. Heck, life is dangerous. We are all subject to recall at any point.

I would certainly have the discussion with her, and find out how she feels about investing with you. That will tell you a lot. If she does want to invest with you, figure out how to best protect each one of you in the transaction. If not, that tells you a whole lot, and determines your course of action.

It's best to look at the worst case scenario up front. When you set up the transaction, plan for the worst case scenario. Then, the course of action is already set. Think of it as a pre-nuptial agreement sort of thing. Best to deal with problems up front, before they occur, when cooler heads prevail.

Good Luck!

Jim 

Dive in but I would say definately get an LLC to define the terms of the transaction. A good friend asked this very same thing 5 years ago I told him the same things, get an LLC and one person MUST be 51% decision maker otherwise your begging for a judge to be the decision maker at some point. He ignored the advice and ended up in court when his ex girlfriend stripped the house and walked out leaving him with a 20k repair bill.

Guys thank you for all the insight. If we don't get an LLC and just go through with standard ownership, can we still protect oursleves with a written agreement? What are the benefits of an LLC besides just having a written agreement between one another.

Originally posted by @Tysean Jackson :

Guys thank you for all the insight. If we don't get an LLC and just go through with standard ownership, can we still protect oursleves with a written agreement? What are the benefits of an LLC besides just having a written agreement between one another.

 Little houses with debt do not mix well inside LLCs.  You will be subject to crummy commercial loan rates and terms.  Adjustable rates that are callable and or with balloons.  Fannie and freddie only offer loans for natural persons, not entities.  Your rate will be 33% higher than mine and only go out about 5 yrs instead of 30.  Not worth it for me.

I would look into TIC - tenants in common. You can also have a simple JV - joint venture-agreement. Do some digging, then consult a tax and legal pro.

OR- buy separately.  I am married, but my wife and I buy separately so we don't burden each others credit.  Most can have 4 loans before things get more difficult - then up to 10 is possible before going commercial.  Because we buy separately (we are in a community property state so it don't matter) our limits double to 8 and 20 loans.

I would never do it. Go it alone or not at all until you are married. If you do start and decide to get married, and have done all investing in your own name, make sure you have a prenup agreement.

If you both want to invest alternate registering properties one in your name one in hers and agree you each own separately.

It makes investing so much easer when you decide to go your separate ways in life.

Keep in mind 50% of relationships fail, don't risk your financial future on 50% odds.

You don't have to be married to successfully invest with someone. There are plenty of business partners that are not married or of course, even in a relationship. I know relationships can make things more emotional, so the key is to be able to be secure enough with each other to still be business partners and not take things personally. For example, one can not be offended that there should be agreements put in writing and signed. If that is a problem, that is a big red flag to not move forward with investing together.

I recommend you research titling in "Joint Tenancy" vs "Tenants in Common". I believe with Tenants in Common, one owner can sell their share to someone else much more easily. 

Another document could be a Domestic Partnership Agreement, especially if you're already living together.

Have a chat with a local, good estate planning attorney who can tell you the differences in how assets are split or passed to heirs when married vs unmarried. And make sure this is an unbiased attorney who just gives the facts rather than simply tells you to get married. Marriage is not always the answer, desire, or goal of a couple, and that is perfectly fine. You just need more detailed planning.

Outstanding information. I now have a good place to start. I will definitely look into the "Joint Tenancy" and "Tenants in Common" options. Those seems like the options that fit my situation the best. Do you engage in that written agreement before the property is purchased or after? Also does the bank care about any of that or is that just an agreement on the side?

Originally posted by @Tysean Jackson :

Outstanding information. I now have a good place to start. I will definitely look into the "Joint Tenancy" and "Tenants in Common" options. Those seems like the options that fit my situation the best. Do you engage in that written agreement before the property is purchased or after? Also does the bank care about any of that or is that just an agreement on the side?

I'm not an expert or legal pro at all, but the JV agreement should be on the side. The bank shouldn't care about it from what I understand.

I'll mention @Jerry W. here. He knows a lot about Joint Tenancy, TIC and tenants by entirety (?). Much more than me, obviously :)

You could set up the agreement before, day of closing, of after (but if after, don't wait long at all). I do not think the bank cares about your personal agreements. But again, it is probably a very good idea that both of you write down all of your questions and go talk in person with an estate planning attorney. It won't cost you much, if anything if they give you a free consultation. The information is priceless. They can also help you write out an agreement and how to handle assets if, for instance, they are titled in both names but only one name has the loan. 

Thanks again guys!!

@Tysean Jackson ,

I was in nearly the same situation, where me and my boyfriend (now husband) both wanted to get into it, and heard the same stuff you are hearing now.. we set up an LLC, both own 50%, so if it didn't work out, it doesn't matter-- we both own 50% of the company. We just did a basic write up, but if you're nervous, pay $$ and have a lawyer write it up and both sign it! Also, before you go into it, have a buyout agreement ready in case one person wants out. It's always better to write it up when things are great and everyone is logical!

I will say,  being business partners and doing rehabs with your significant other  will test your relationship in a very extreme way-- the amount of communication needed,  and you both have to continually trust and respect each other, because it's your relationship!    You will quickly see their work ethic, dedication, drive, and IMO you can see better if it's a long term fit!   You need to have clearly defined roles in the business, I do all the financial side, he does all the rehab and construction, ongoing maintenance.    You need to make sure you're on the same page as far as business plan, and be comfortable with the debt and spending $$.     

@Linda D. That was awesome info. Do you think I need a LLC being that we are just looking to acquire a condo to AirBnb or would a standard agreement on the side suffice?

@Tysean Jackson ,

I don't think you need an LLC, but it does help by keeping everything separate. Our company is it's own entity and it helps keeps things clear business vs. personal, so while I don't think you need it, it helps and I'd recommend it. What you don't want, is one person spending more than the other, and keeping tabs, or questions about who can spend rental income? If you don't do an LLC, make sure everything is in writing, and clearly define everything regarding normal business activities.

@Tysean Jackson - Like @Linda D., my then boyfriend (now husband - @James Carlson ) and I ended up going into Airbnb together in Denver, CO. We were spending a lot of time together, so decided to rent one of our places out to see if we could make money and because it did (and very quickly), we started getting places and renting them out until it eventually became a business, we got married, and quit our day jobs to go into business together. I wouldn't presume to give marriage advice, but seeing how a business partnership works can also suggest how a marriage might work too... as they both involve a good deal of trust and mutual respect. Good luck. 

@Tysean Jackson

Like @Linda D. and @Nicole W. and @Account Closed already said, she and I have done quite well. I think it can work a lot of different ways but having complementary skill sets certainly helps. For instance, I'm good at client management and Erin's good at mocking my personal style, so it works well ... ;)

Seriously, even if it didn't work out, everything you ever read about successful people says you learn more from failure than from inaction. And it sounds like you have a good sense of this lady and her business acumen. So my unqualified opinion is to listen to that gut feeling and go for it!

Love all you guys advice. I'm seeing that a lot  of you on here got lucky enough to marry your business partner. That's defintely the goal, and if so then that would make all of this so much more simple lol. Wishing you all success.

@Tysean Jackson So I think you're setting yourself up for failure, now for the "why":

1.) AirBnbs are likely more labor intensive so the "issues" that come up with take more of your time and have the potential to create more friction.  What if she doesn't want to spend a Saturday morning restocking toiletries at your AirBnb?

2.) You're "hearing that there are really good returns here" makes me think you're a rookie.  That's not bad, it just means you'll make your share of rookie mistakes and that adds to the friction.  An aggravated significant other can make a small mistake *feel* like a giant one.

3.) When it's your idea and you add in labor, rookie mistakes, etc. whatever does go wrong *could* end up being "Tysean's fault".  It's REALLY hard to emotionally share blame when the other person is driving the idea.

4.) A lot of relationships don't work out and (if it doesn't) you have a more "labor intensive" asset (the AirBnb) that you have to handle.  It's not quite as simple as paying 10% to a PM to manage post-breakup and splitting returns.

5.) If you do want to talk to a lawyer about setting up an agreement, create an LLC, etc. you add some real costs to the transaction. If you're buying a $1MM property those are negligible additions, if you want to try and AirBnb a $200K house, those costs aren't.

Those are my initial thoughts and there's a very good chance I'm wrong.  My "gut" is that all too many people on BP look at the upside of real estate more than the risk factors.  So my advice would be:

a.) Set up a BP account for her.

b.) Find forum stories about deals that have gone sideways, tenant horror stories, etc. and have her read them.

c.) See how comfortable she is with the risks.

I know, I'm no fun at all...

@Andrew Johnson Thanks for helping me get a well rounded view of things here. Even with an agreement, It seems like its going to be pretty difficult to set the duties on something as labor intensive as an AirBnb. Any ideas?

I'm a little surprised by the majority of the responses to this thread.  The saying, "Don't mix business with pleasure" is a saying for a reason.  While there may be times that everything works out perfectly, those times would be the exception, and not the norm. 

FACT:  The overwhelming majority of relationships fail, heck in todays world even most marriages fail.  Putting up what is likely a sizable amount of each of your net worths into a partnership deal will only add to those struggles.  Contracts, legal entities, and buyout options can only assist with the business side of the deal, but nothing can salvage the personal side of things when the first trivial thing goes wrong and it suddenly becomes "your fault".

Don't mix business with your personal life.  

"looking to acquire a condo to AirBnb"

You may want to rethink that plan. You will have difficulty finding a HOA that will approve AirBnd.

@Tysean Jackson , since @Steve Vaughan tagged me here is a very quick overview of types of ownership.  There is tenants in common.  In that ownership if one party dies then their legal heirs inherit the property not the other owner.  Either party is free to sell their share to whomever they want.  The next form of ownership is Joint tenants with rights of survivorship.  In that form of ownership if one party dies the other owner inherits the property.  There is also tenants by the entireties, my favorite type of ownership, but it is only allowed to be by married couples.  I do not know if all states allow this form of ownership.  It means both parties own the entire property and neither can sell it without the permission of the other, and no creditor can attach it unless both parties owe the debt.

You can of course set up an LLC and both own it as well in any percentage you two agree on. There are a few clauses you might want to consider being in your partnership agreement or operating agreement. One is a right of first refusal, that allows the other party to buy the others share at any price you receive a bonafide offer on. Another is to set a 3rd party arbitrator to settle any dispute that comes up in case you do a 50% split on ownership. Perhaps a local investor who you both respect. the two of you must in good faith attempt to resolve any dispute, or finally a possible option that provides if there is a deadlock or a buyout agreement cannot be reached that the property is listed with a realtor and sold at what the realtor recommends. It often helps to set out how labor or costs are divided and that all disbursements or payment for services must be approved by both parties before they can occur. Keep formal minutes and have a separate bank account for the property. I know of folks who owned property together and divorced but still ran a business together, of course I have seen cases where the people tried to kill each other also. Make a good paper trail of your agreement. If one of you is hit by a car the heirs will not have the same affection for the survivor as the original party and you need it documented and in signed contract form.

There are just quick thoughts.  You can probably do as well if you sit down and really think about it.

The decision on whether to mix business and pleasure is yours alone to make.  You are the one who is smitten and it will be your money and time involved.  My best advice is to always treat the other person with consideration and respect.  Even if you think you know ask them before you make any kind of serious decision, and keep your books and accounting meticulously.  This will be a good chance to see how compatible you two are when you disagree on something.

It's a pretty fast way to strip the romance out of the relationship.  People make it work, but the odds are not in your favor of this being a good decision.  Why does it have to be with her?

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