Looking for best way to structure an investment

2 Replies

Hello,

I have a unique scenario where 3 people are involved in acquiring a property, just looking for the best way to go about it that satisfies all three parties.

Person 1: Bad credit, Mid-40s income, never owned and hoping to buy a home on their own in a metropolitan area (Fixer upper).  

Person 2: Great credit, Business owner with assets, Home owner, family member to Person 1.  Hoping to help Person 1 acquire a home but wants them to pay to a company, not to them. 

Person 3: Great credit, no income, home owner with a small passive income, and capable with home renovation.  Also has a desire to create a home for Person 1. 

How do these three people fairly go about purchasing something for Person 1, but allow person 2 and 3 be able to benefit (even slightly) from the mortgage payments made? A trust, a company? What is the term for a very watered down REIT?

Side note: Ideally this is just the first scenario.  Person 2 and 3 have plans to create a real estate investment company together to add doors / help low income or low credit people get into homes.  Just in case this helps direct the ideas.  Thank you everyone!

Andrew:

Doing business with family is a risky bet.  If things go sideways, Thanksgiving and other holidays can be forever miserable. So, I would caution against that.

In that same vein, why does Person 2 need any help at all from Person 3?   If they want to do business, do business.  This is not a business.   Given that this is more of a family help session, the fewer number of people involved the better.  

So, if they want to help Person 1, I would have Person 2 buy the property for cash and then sell it under land contract or owner financing to Person 1.  If your state allows land contract, that is the simplest.  If Person 2 cannot pay cash, then it gets a lot more complicated, although not impossible to arrange.

My major concern continues to be that Person 1 is 40 and if they have earned that bad credit from onging bad financial behavior, this situation is likely to end badly and ruin every family reunion for years.

Originally posted by @Greg Scott:

Andrew:

Doing business with family is a risky bet.  If things go sideways, Thanksgiving and other holidays can be forever miserable. So, I would caution against that.

In that same vein, why does Person 2 need any help at all from Person 3?   If they want to do business, do business.  This is not a business.   Given that this is more of a family help session, the fewer number of people involved the better.  

So, if they want to help Person 1, I would have Person 2 buy the property for cash and then sell it under land contract or owner financing to Person 1.  If your state allows land contract, that is the simplest.  If Person 2 cannot pay cash, then it gets a lot more complicated, although not impossible to arrange.

My major concern continues to be that Person 1 is 40 and if they have earned that bad credit from onging bad financial behavior, this situation is likely to end badly and ruin every family reunion for years.

Thank you for the reply.  Let me address some of the concerns:

We are absolutely weighing the family factor, although this has happened in the past with the same group and it worked out well.  So hopefully that will continue.  

Person 3 can do the renovations is their main contribution.  Person 3 can also be a cosigner so that person 2 doesn't have the full responsibility of managing the investment.  Person 2 cannot afford to buy any property in cash, it will have to be financed in some way (Another way person 3 may be helpful).  Person 1 is in their 30s, but just hasn't had credit to begin with at all, beginning now and isn't ready to take on a mortgage on their own.  Has no problem paying rent in their history and has a very consistent job that will always be in demand.  The idea would be that eventually person 1 builds credit enough to buy something else on their own, freeing up the property to be the first asset in this new business for person 2 and 3.  

Just a matter of the way to structure it legally...

Thanks again for your suggetions!!

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