Multi-Family House Hack Investment - 50/50- How to Structure?

Question

Hi BP, I am looking to go in 50/50 with a partner in a multifamily house hack. He will live in one of the two apartments in the Multi-Family.

Assuming down payment is 50/50, how do you then structure who pays what? all costs 50/50?

Let's say there is a 2 bed and 3 bed and he stays in the 3 bed?

As I am writing this, it makes sense to me that it would be 5050 cost down the middle after the rent from the 2 bed is subtracted out of the total monthly expenses.

If anyone has a document or any tips on this type of deal, please let me know.

Thanks

Brad Jacobson · Answer

Hi @Stephen Massinello,

If you're both going to be on the loan (AKA, both of your incomes are counting towards the pre-approval and you'll both be on title) the lender should be fine with any sort of downpayment split. The downpayment simply has to be sourced from the buyers on title (can't be gifted from a third party in most cases) and the amount can be split however.

If you are partnering, it would make sense to purchase the house in your personal name, then have the property deeded into an LLC. Within that LLC, you should have your ownership amounts established in accordance with your downpayment or whatever you and your partner decide.

Hopefully this helps. Good luck!

Beau F Borinstein · Answer

Hello Stephen! Figure out what the market rent is for the 3 bd unit and then take 50% of what that income is and 50% of what the 2 bd unit should be. If you are just taking 50% and letting the other guy live their rent free then you are getting the short end of the stick.

Ben Wagner · Answer

There isn't necessarily a standard, it also depends on responsiblities and who is doing what/bringing what into the partnership.

Does one of you have the credit that's being leveraged, does one of you have more money for the downpayment, will one of you be handling property management, will one of you be putting sweat equity into the property, etc.?

All of this factors into how you should handle the partnership split. But as Beau said, the partner living in the home should likely incur some cost for living in the property.

Drew Sygit · Answer

@Stephen Massinello

When partnering with anyone, but especially family & friends, you want everything in writing. Otherwise, you may not be welcome at family events!

Too many investors want to partner with “handshake agreements”, which they would never do with a tenant or property management company.

Things to think about:

1) What happens if one of you is suddenly incapacitated or dies? Do the surviving partners get that investors shares or do they have to deal with relatives that may be ignorant and/or greedy?

2) What happens if one of the partners wants to terminate the business relationship and wants their investment out now?

3) What happens if one of you drinks & drives, killing someone and getting sued by the victim's family? How would the other partner(s) be protected from that?

So, why wouldn't you want to hire an attorney to create a partnership agreement and perhaps an LLC to cover as much of the above as possible?

Stephen Massinello · Answer

Thank you for the information Suzanne.

Suzanne Player · Answer

@Stephen Massinello

You absolutely should not begin this project without an attorney. You'll need advice on entity choice (ex, LLC vs partnership vs corp), & will need agreements drawn up to handle contingencies such as the ones mentioned by @Drew Sygit along with others.

If you're holding it for rental, you'll need a good lease, don't try to wing it, the fee you pay your attorney is a relatively small investment that will pay off. This is true even when one of the investors rent the place as a tenant.

You'll also need an experienced insurance agent to help make sure you have proper coverage. There are a lot of contingencies that don't normally happen, but if they do, can be disastrous without proper insurance.

Don't forget a good CPA either, if you don't already have one.

Stephen Massinello · Answer

Thank you, all housing costs would be 50/50 correct aft tenant rent? is that generally how people structure that costs in the partnership?

Multi-Family House Hack Investment - 50/50- How to Structure?

Multi-Family House Hack Investment - 50/50- How to Structure?

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