Investment situation question

5 Replies

Hello BP members! 

I am looking for some advice concerning investments with my partner a.k.a. my brother. We were brainstorming some strategies to purchase our first property, we have an idea to purchase one home with conventional lending and the mortgage in my name (I have an FHA loan for my primary residence), and purchasing another MFH with an FHA loan in only my partner's name. We hit a roadblock when discussing the tax situation. If we split costs 50/50 for everything, how do we factor that in to our taxes since each individual will have a loan in their name but the costs and profits are split? Thank you for any advice/input!

@Nicholas Reyes I could be wrong but I think your best bet would be to establish either an LLC or LLP and then the taxes would fall onto the company and not onto the individuals. This should solve your predicament.

@Sean Carroll That was our first thought, but the LLC can't hold the FHA mortgage. So would we just put all the funds into the LLC and distribute from their? Or would we jut file separate taxes for the LLC and file on our individual return only when a draw is taken?

When handling taxes because interest is deductible I would consult a CPA because I'm not sure if you could deduct the interest paid if it's not under the LLC's name. But yes I would do the indivual returns other wise

Thank you! We will work with a CAP soon. I appreciate your input

@Nicholas Reyes

First off - an FHA loan can only be acquired to purchase a personal residence.
You can use an FHA loan to acquire a multi-family where you live in one unit and rent out the other units.

I would think you should keep it simple - You use an FHA to acquire a multi - live in one unit and consider the other units as 100% your own rental units.

your brother can acquire another FHA to acquire a multi where he lives in one unit and rents out the rest. He would then report the information on his tax return.

You can each provide the other with guidance and support - but joining together may make things more difficult especially if you are holding title in your own names.

An alternative is to be on the title together and do a tenants in common. However - this decreases the total amount of conventional mortgages you can get if you did it separately.

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