What's a good way to structure a deal with a family member

[Scott M McPherson]

Hi all! I'm just starting real estate investing and trying to figure out how to work a deal with a family member that has the cash.

I'm thinking something like this.

- I find a good deal on a single family that needs a lot of cosmetic rehabs (I can do that) but has good bones and is in a desirable neighborhood

- Family member puts up the down payment and sets up the mortgage

- I live in the house for one year and fix it up while living there, using my money. I also cover the mortgage expense while living there

- After a year is up, rent the house, and the rent would go towards the mortgage. I would manage the rental.

- Rinse and repeat

It would be a 50-50 split on equity.

Has anyone ever taken this approach? Does it sound fair and reasonable?

[Eliott Elias]

It's dangerous bringing family in. Especially if both of you are newbies and neither can steer the ship. I would make sure the deal is killer before getting into anything. 

[Scott E.]

Your outline is not a bad start. There are a few holes and things missing, but you are on the right track.

The biggest issue that I see with your plan is that the family member is putting up the down payment and putting the mortgage in their name, but they aren't seeing a return on their money for at least a year. Depending on how much money they are putting into the deal, this could be a big turn-off for them.

Splitting up the cash flow 50-50 and splitting up the equity upon resale 50-50 is pretty fair for a deal structure like this in my opinion. But that family member should want to see a return on their money during that initial 12 months. Maybe you can agree to pay them an interest only payment of ~5% on their money for that time (it would be like you having a 2nd mortgage)

[Scott M McPherson]

@Scott E.That's a great idea. I like that