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Partnership where 1 partner would live in the investment

Posted Nov 10 2022, 08:00

Hello everyone - thank you for clicking in here!

I have a friend/acquaintance that I have known all my life. We aren't super close, but we trust each other and we're both logical people with decent incomes and are considering the idea of investing in real estate together despite the risks of mixing friends with business. I'm 24 and he's 23. He just graduated from college and is living at home saving up for a down payment and I'm saving up for a wedding, but I also make enough to save for beyond how much we intend to spend for the wedding. Due to this, we're hoping to put our funds together and buy a bigger deal than either of us could manage alone.

We really would like to find a way where him and I could go 50/50 on everything and we both intend to reinvest 100% of the profits at least for the first few years while we work full time jobs for income. The complexity comes in with the "how". The fact is, he will have trouble saving up for 2 down payments within the next year, so if we invest in a property together, it would be ideal he live in the property for his sake.

I've suggested that he should pay the full rent in the form of owner contributions (or some other way to not get double taxed on his dollars) to an LLC we would own (we're intending to buy a 6+ unit property) to make up for the loss of income by him occupying the unit. This way, he can keep his 50% equity and in my mind, all is fair and the money he's paying in rent is a direct investment into his business. He doesn't love this idea because he sees it as throwing money away as if he was renting from anyone else and would rather pay a mortgage towards equity in his own place. I have no idea how he'd afford the two down payments that way as this seems to be a huge drawback to me, but regardless I've suggested that as an exercise to test our partnership, we should at LEAST figure out how we could possibly structure this deal to be fair even if he decided not to take it. Half as a test of our partnership and exercise to strengthen it, and half because I truly feel there's a solution here that works for both of us. I want to know the extent of what we're getting into and how we can properly structure this deal in such a way where we both feel like we win and nobody builds any resentment for one another. I feel like there's a solution here where we all win.

We're intending to manage the property ourselves, but will only go in on a deal if the numbers work *with* a PM company in the event that managing the property becomes overbearing. While we intend to manage the property 50/50, I'm curious how practical that could be when he's living on-site. If I never step foot onto the property myself after owning it and we manage it ourselves, is it realistic that it will be possibly for me to pick up 50% of the work to manage the property?

Curious what you all think about our situation and what you would do. Anything you can share about previous partnerships, especially if one partner lived in the investment, would be gold here. No matter what, I greatly appreciate your time. Thank you, and I look forward to meeting some of y'all in the replies. 😄

Also, just so this is covered - we will absolutely be talking with a lawyer and a tax professional before making any moves. I just feel like there's value to gain out of hearing from other investors before we go any further.

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