Hi BP community,
I’m having trouble structuring a deal between my partner and I. I do not have a lot of taxable income as I’m self employed right now and don’t have 2 years of work. However, my partner has that but is not willing to put only his name on the mortgage as he wants my name on it as well so He doesn’t feel like he will be incurring all of the risk. We have the same mind set for real estate and I want him to be as comfortable and confident in this investment as possible so that we can move on to get our first duplex together. I would take care of the management and marketing of the property and he would supply the finance. I make around $900-1000 bi weekly and he makes more so we know we can afford it if we have any vacancies as all of the expenses for the property come in around 1400/month (our rent coming in would be around 2000). How can I structure this so that I can take 50% of the risk? I should mention I live in Fredericton NB, Canada and that those rough numbers are just a property we walked through.
What's your issue with putting your name on the loan? From my perspective it seems like you only have to gain, as your partner can supply the needed capital.
By being on the note, both you and your partner will share responsibility for it being paid.
@Kon Zel thanks for the reply, I don’t think I am eligible to be put on the mortgage as I don’t have Any proof of income from the past two years.
@Matthew Fearneley is the lender doesn't qualify you to be on the mortgage, there is a risk for your partner to not have you on there. You can have an agreement that is separate from your mortgage where you are equally responsible for the payment. To give him comfort, you can suggest opening a joint bank account. If he is concerned, he needs to understand that you cannot go on the mortgage, but you are equal partners. You can even offer to include a clause that if you default (don't pay your half), then he gets to take your interest after a certain period of time. I would only suggest offering that if you HAVE to in order to get the deal. Otherwise, just try to comfort your partner and keep the strength of the relationship as the reason for splitting it.
@Dan Barli Thank you very much for the informative reply, I appreciate it. Another question I would have for you is how do I get paid out of this If we do agree that we are 50-50 on the payment of the mortgage? Would both of our names go on title as 50-50 owners?
@Matthew Fearneley , if you agree that you're 50-50 partners, wouldn't you be 50-50 on both the payment of the mortgage and on the profits/cash flow? You may not be able to go on title if the bank won't qualify you to be on the note. You should have an operating agreement with your partner that specifies the agreement and splits of profit/payments.
@Dan Barli The verbal agreement we have reached is that I would receive 50% of cash flow, 50% ownership of the property, and 50% of the profit at selling if that makes sense. Thank you for the replies.
You have to ask the mortgage company if they will allow you to be on the deed in order to get the 50% ownership. If you are not qualified to be on the loan, they may not allow you to go on the deed. In that case, you can purchase the property as an LLC, which takes you out of the realm of conventional financing @Matthew Fearneley . The 50% of cash flow, expenses and profit at selling is easy and can be done through your agreement with your partner.
@Dan Barli instead of ownership, could I just get 50% of what He gets when we sell/refinance? Thanks again for taking the time to write these replies.
Yes, you can structure it how you want @Matthew Fearneley ? You would not get any benefits of ownership that way though.
The two of you can split ownership percentage. you can be on for 99% and he can have 1%. That should solve a lot of the issues.
Also, recently they made changes to BFS in Canada. If you run a tight ship, have contracts and reg deposits, we can get funding with 1 year work records.