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Updated over 6 years ago on . Most recent reply

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Jennifer Dorsey
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First multi-family purchase partnering with family

Jennifer Dorsey
Posted
Hi! I am looking to buy my first multi-family. I have a sister that would like to invest cash as a silent partner. My mother and I will be splitting the remainder. Do you have any advice on how to protect all three parties? Who’s name should be on the mortgage/deed. Was planning to quick claim to an LLC at closing but the LLC forum didn’t seem to highlight that idea. We have a meeting scheduled with our RE attorney. Any advice at all would be greatly appreciated.

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Sam Grooms
  • Investor
  • Phoenix, AZ
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Sam Grooms
  • Investor
  • Phoenix, AZ
Replied

Hi @Jennifer Dorsey. Be careful having a "silent partner." If your sister lost her money, she could technically sue you as what she really invested in was a security. 

Instead, give her a small role to play in the business, which no longer makes it a security. The only other option would be to register it as an exemption to a security, but you'll likely pay $10K+ to a securities attorney to set it up this way. This is known as a syndication, and doesn't make much sense for 1 investor and 3 total partners. 

As for protecting all parties, I would form an LLC with the three of you. I recommend doing this before you find the property, but at a minimum I would do this between getting it under contract and closing on the property. This LLC will be on the mortgage/deed, with you three likely being guarantors on the mortgage. Doing a quit claim after closing just adds more complexity that you don't really need. Just set it up right originally.

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