How to Structure Deals/Financing with Friends - No LLC

Question

Hi everyone! I'm looking into investing in my first deal with my wife and our best friend. I was wondering if anyone has any tips or experience on structuring the financing (IE: what kind of loan did you get/recommend, was everyone listed as a borrower on the loan, etc), and if you have any advice on how to phrase your "partnership" agreement. We're seeking individual financing and eventually want to transfer the property into a formal LLC entity.

Colton Wickham · Answer

@Jessica Zolotorofe @Simon W. Thank you both for the reply! Here are more facts specific to our situation (slightly adjusted from my original post):

1) We would like to set up a co-ownership or tenancy in common agreement instead of forming an LLC between my wife/me, and three friends.

2) Ideally, we would all like to be listed on the title/deed of the property.

3) My wife and I would live in the property for the first year, then serve as the property managers (find renters, etc)

4) Our friends/co-owners would provide the initial down payment for the property.

5) We aren't ready to form an LLC right now, but would like to transfer the property into an LLC at a later to be determined date.

Under those considerations, would we apply for a conventional loan and be listed as co-borrowers on the mortgage note? Then, as co-owners, how would we need to report the rental property income/expenses for tax purposes?

Thanks for your help!

Jessica Zolotorofe · Answer

It would depend on what each partner is doing. If one is contributing just money, maybe a profit sharing agreement, or a note would be better for you if you don't want an LLC to own the property.

You can also own the property as tenants in common, but other complications arise if you do it that way.

As far as the loan, it depends on who holds title to the property. If you all 3 end up holding title then whoever qualifies for the loan can be on the note and the rest of the owners have to either sign the mortgage or a document acknowledging that the mortgage is authorized, depending on where you are located.

Simon W. · Answer

How are you seeking financing?

How to Structure Deals/Financing with Friends - No LLC

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