I have a friend who would love to buy a duplex and we've been kicking around splitting the deal - we'd get in at 5% (or less) down and he would live there as the owner occupant. I've never done this type of deal with someone before so I'm curious in how it would be structured.
Can my name be on the mortgage with my friend without me living there? Or can I have my friend have the mortgage in his name and we're both on the title? And does anyone have any experience or ideas on how the rents should be managed in this scenario? I'm thinking that I'd have one unit pay market rent and my friend would cover the rest of the mortgage with his rent. It's a win for both of us because he gets under-market rent and my equity begins to grow. When he moves out at some point we'd split all profits. Does anyone have any thoughts on this?
We've been involved in family partnerships for over 23 years. We find the best structure is to form a legal partnership. An LLC works well for us, as it clarifies the terms of the partnership and defines our operating agreement, as well as how to dissolve the partnership when the time comes. Get a qualified tax advisor on board from the start.
If there's no lender involved, or if the lender allows it, put the property into the name of the partnership. If the lender doesn't allow this, then put it in both your names.
Price both units at fair market value. If you don't, the IRS will have a say in this. Your partner will need to pay according to the terms of your rental agreement (yes, he will need to sign a rental agreement) and he can receive compensation for his investment in a similar manner to how you will receive compensation. It's important not to muddy the water. Keep his role as investor/owner separate from his role as tenant/occupant.
thanks @Marcia Maynard ! We will need to use a lender, unfortunately. Good point about having an LLC formed for the partnership. I also had never thought about my friend signing a lease. That makes sense so everyone is treated equally.
Thanks for the response!
@Annie Schrock Have you and your friend considered private note-lending with an experienced team? There are still many opportunities to generate 12% annualized returns in 1st lien positions. I am in several note-lending opportunities currently.
Advantages = Scalability, economy of scale discounts, lower property management rates, easier to maintain than small multi-family, the more units, the safer and more efficient the project (in our opinion) We usually deal with 100 units + on each project, rarely exceeding 350 units.Disadvantages = deal flow (hard to find properties in the domestic US with solid cap rates) We're shifting focus more heavily to Puerto Rico and the opportunities it currently presents.
If you have any additional questions feel free to reach out anytime. I am more than happy to help.