Newbie Question - 50/50 Partnership Setup

[Carlton Chestnut]

My brother and I are looking to purchase a multifamily property together 50/50. We look to use a FHA loan (one of us will live in one on the units) and split all work, profits, expenses, and equity down the middle. We don't believe we necessarily need to form an LLC for this initial investment but would love more in sight into the proper process of pulling this off. Ideally we would get an attorney to draft up the specifics of our arrangement but things that we are unclear about include things like, who should take out the mortgage (both names v.s. the one who can get the better offer), what documentation is essential i.e. equality/partnership agreement. Any info/advice regarding this would be greatly appreciated - this will be our first purchase.

[Justin Abdilla]

Originally posted by @Carlton Chestnut:

My brother and I are looking to purchase a multifamily property together 50/50. We look to use a FHA loan (one of us will live in one on the units) and split all work, profits, expenses, and equity down the middle. We don't believe we necessarily need to form an LLC for this initial investment but would love more in sight into the proper process of pulling this off. Ideally we would get an attorney to draft up the specifics of our arrangement but things that we are unclear about include things like, who should take out the mortgage (both names v.s. the one who can get the better offer), what documentation is essential i.e. equality/partnership agreement. Any info/advice regarding this would be greatly appreciated - this will be our first purchase.

You don't want to put up an LLC for your first property. The Bank will usually look at an LLC buying the property and make you do a commercial loan. That means 20%+ down. My FHA clients are typically not putting 20% down.

LLCs are awesome for limited liability, for sure, but I think you and your brother could make a private partnership agreement between the two of you that defines the rights and responsibilities of the both of you. You won't have limited liability on the house, meaning that if tenants get injured on the property you could both be personally liable. That just translates to taking out GREAT homeowners insurance rather than putting together an LLC.

Once you've got 5-10 properties, at that point get an LLC and deed the properties into it. I would still see a lawyer for the partnership agreement, but maybe that's because I'm so conditioned to telling everyone I ever talk to about anything to hire a lawyer. Good luck!