How to buy multi-unit property with partner

4 Replies

Hello everyone, My name is Carl Evanko and I am new to the site and new to investing. I am looking to possibly start my investing journey with a family member (Brother or Sister in Law) as a partner. We are interested in buying a multi-unit property as our first investment. Ideally, the property would be a 3-4 unit building. I am able to provide the necessary down payment and they would (Hopefully) be eligible for an FHA loan. I am unsure of how to structure the partnership that's fair for both of us. Since they would be living in one of the units, should they be paying an additional 25-33% for occupying that unit? Since they would be living in one of the units, they would be willing to manage the property for at least that time frame. I would also like to factor in that as part of the calculation. The other thing I am unsure of is, would I try to be on the mortgage (Is that allowed) or if a true venture partnership is necessary.

For those that are curious as to why I don't just try to do this on my own, I am married with 2 kids. I run a small kitchen remodeling/custom cabinet business from my single-family residence which is ideal for my business deliveries. I also love the idea of getting my brother or sister in law involved to help them out in the process.  

How would you go about structuring the partnership and what factors should I be thinking about that maybe I am not. Thanks for any assistance you can provide. 

My policy:

Never

Rent to

employ

loan money to

partner with

build a house for(as general contractor)

ANY FAMILY MEMBER

I have done all these things.  It has NEVER ended well, 

@Carl Evanko

For an FHA multi-family you both would have to be co-borrowers and intend on living in the property. Otherwise, FHA would require 25% for a non -occupying co-borrower on a multi-family purchase. This only works if they were purchasing a SFR.

@Carl Evanko you might want to run your numbers based on having 3 or 4 full paying market renter and you paying for a manager. Then figure out how to structure things. Also, keep in mind how much value is being provided throughout each stage of the deal and ask yourself, do you need a partner on this one? 

Thanks for all the replies. 

Arlan, I definitely understand the risk and can understand this stance. Obviously, there can be issues when family is involved for multiple reasons. I have family in Chicago that owns a large amount of multi-unit properties together. I don't know what issues they face internally but they seem to co-own that together successfully. This may not be the direction I end up taking but one I would like to explore for the possible house hack benefit. I wouldn't choose this option if I felt I couldn't rely on my family to perform their role in the business. Obviously, things can still go wrong but hopefully not if this is the route I go.

Jerry, If I would have to be a co-borrower and that would require both parties to occupy the space, that eliminates that option. Can I get around that by creating a venture partnership or would I still be required to occupy the space as the owner/co-owner of the partnership?

Danny, Thanks for the advice. I will definitely look at it that way when considering any property. Ideally, if I do go this route, my family member wouldn't be a permanent tenant.