Close friend wants to partner up to buy a duplex

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Close friend wants to partner up to buy a duplex

Kristopher Shobe
Member since 2019 · 15 posts · 3 votes

My buddy and I would like to buy a duplex and our question is, could we each get a personal loan for 30k, let it sit in our accounts for 30 days and then use the combined funds to purchase said property out right? Property is 50k. Rent is $1540.

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Marc Winter
Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
7y

If you are going to by all cash, not sure you need to 'season' the funds.  That is some serious cash flow--congratulations!  Find more of the same and you and your buddy have a great retirement income!

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  • Saravanan Saravanan
    Lender · Troy, MI · Member since 2019 · 432 posts · 147 votes
    7y

    @Kristopher Shobe You can do this of investmet.  One of the aspect, you have to keep in mind; is that; there is enough cash flow from this property that makes sense; after paying off the personal loan.  You may have to factor in costs like property taxes, property insurance, maintenance of the property and vacany rate etc.

    0Reply
  • Kristopher Shobe
    OP
    Member since 2019 · 15 posts · 3 votes
    7y

    @Saravanan Saravanan

    Doesn't $1,540.00 per month make sense on a $400 per month mortgage?

    As far as pm goes I would do that myself.

    0Reply
  • Marc Winter
    Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
    7y

    If you are going to by all cash, not sure you need to 'season' the funds.  That is some serious cash flow--congratulations!  Find more of the same and you and your buddy have a great retirement income!

    5Reply
  • Kristopher Shobe
    OP
    Member since 2019 · 15 posts · 3 votes
    7y

    @Saravanan Saravanan

    I see what you mean now. Sorry. The cost per month for both loans could potentially be higher than the rent. Sorry, i didn't realize that.

    0Reply
  • Mica Moore
    San Antonio. Tx · Member since 2018 · 75 posts · 47 votes
    7y

    Make sure you have a partnership agreement. An LLC is best. Its all fun and games until 1 of you disagrees with something. Have a contract.

    4Reply
  • Jeremy Hostetler
    Rental Property Investor · Tacoma, WA · Member since 2019 · 43 posts · 12 votes
    7y

    Is the total purchase price for the entire duplex 50k or 100K?

    Is the total rent $1,540 or just one side?

    I see you said you would live in one side however, your doing a partnership. I was just slightly confused. Sorry if I muddy the water.

    0Reply
  • Bob Woelfel
    Investor/Agent · Kansas City, MO · Member since 2017 · 291 posts · 308 votes
    7y

    @Kristopher Shobe....regardless of what you buy I would highly recommend forming an LLC and having an operating agreement that spells out specifically how the business will be run. I know you are friends now and I hope you are in 30 years, but you'd be surprised what can happen when you mix friendship with business/money sometimes. There are so many things that can change over time as well. Maybe one of you loses a job or has to relocated in 5 years and you need the cash. Maybe one of you wants to grow the business significantly and the other wants to get out. An operating agreement helps guide you through the process of what happens to those assets and how a partner can exit the deal, etc. I wish you the best.

    1Reply
  • Scott WolfPro Member
    Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 958 votes
    7y

    @Kristopher Shobe If the numbers work, there's no need to season the money from the personal loan in your accounts.  Once the funds clear to you, you can purchase the property the following day.  The seasoning period would be 6 months after you have owned it(maybe longer depending on banks) to see if you can put a conventional mortgage on the property.  

    I don't know if the property has been on the market for a while or what, but if you think there is time, or the seller would consider an offer with financing, contact your local banks to see if any will lend on it in an LLC. I say this, as I agree with the previous posters that you should have an LLC with a written operating agreement stating everything in writing so nothing goes south with your friend.

    0Reply
  • Kristopher Shobe
    OP
    Member since 2019 · 15 posts · 3 votes
    7y

    @Jeremy Hostetler

    Price is 55k for the entire building.

    It brings 1540 per month

    0Reply
  • Alvin Sylvain
    Los Angeles · Member since 2018 · 466 posts · 471 votes
    7y

    Question on this topic for them in the know: would not an LLP be more appropriate than an LLC?

    Limited Liability PARTNERSHIP.

    0Reply
  • Kristopher Shobe
    OP
    Member since 2019 · 15 posts · 3 votes
    7y

    @Alvin Sylvain

    Never heard of this.

    0Reply
  • Grant Rothenburger
    Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes
    7y

    @Kristopher Shobe

    Why not just get a mortgage?

    1Reply
  • Alvin Sylvain
    Los Angeles · Member since 2018 · 466 posts · 471 votes
    7y
    Originally posted by @Kristopher Shobe:

    @Alvin Sylvain

    Never heard of this.

    well, it IS a thing, but you may want to get legal advice on whether it has any advantages over an LLC for your particular situation.

    A quick search reveals that an LLC can have multiple owners, so there might not be much upside to the LLP. (which may explain why you rarely, if ever, see it mentioned on BP)

    So I'd like to hear from somebody who knows.

    0Reply
  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
    7y

    @Kristopher Shobe  No need to season the funds for purchasing with cash.  Once you borrow the personal loan money, it's cash in your account and can be used at any time.

    [email protected]
    Stephanie Medellin, Loan Factory58 Reviews
    WebsiteView Page
    0Reply
  • Kristopher Shobe
    OP
    Member since 2019 · 15 posts · 3 votes
    7y

    @Stephanie Irto

    Thank you for the reply. I just didnt know if the funds needed to be in an account for 30 days so the banks can see where the funds are coming from. I think the issue here is the monthly payment for both personal loans is going to be too high, ruining all possible cash flow for the month.

    0Reply
  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
    7y
    Originally posted by @Kristopher Shobe:

    @Stephanie Irto

    Thank you for the reply. I just didnt know if the funds needed to be in an account for 30 days so the banks can see where the funds are coming from. I think the issue here is the monthly payment for both personal loans is going to be too high, ruining all possible cash flow for the month.

     I'm not sure what bank will be looking at your account statements?  Do you mean your bank wants the funds to sit there for a certain amount of time before you can withdraw the money?  Once the loan money is available in your account (through wire or direct deposit), you should be able to access your funds at any time.   

    Yes, the payment on a personal loan will usually be much higher than a mortgage payment, BUT it also has a much shorter term.  If you can do without the cash flow for a few years, you can pay off the property very quickly.  Or if you're planning to improve the property to where it will be worth more and have some equity, you could refinance later this year. 

    [email protected]
    Stephanie Medellin, Loan Factory58 Reviews
    WebsiteView Page
    0Reply
  • Bjorik Mutize
    Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes
    7y

    @Kristopher Shobe

    You can do this, cool numbers what do you plan on doing with the duplex?

    Make sure you and your partner are on the same page and get your plans in writing, signed, and reviewed.

    0Reply
  • Kristopher Shobe
    OP
    Member since 2019 · 15 posts · 3 votes
    7y

    @Stephanie Irto

    Maybe I was treating this like a mortgage somehow. I just know that when I bought my first house, the lender wanted to see my financial statements so they could see where the funds were coming from.

    0Reply
  • Kristopher Shobe
    OP
    Member since 2019 · 15 posts · 3 votes
    7y

    @Bjorik Mutize

    Thanks!

    I first have to go see the place (doing that today, Yay!!), from what I can see in the pictures, the place doesn't need much of anything really. It was just rehabbed and updated. Everything looks great. One of the things I would change would be to put the other unit on a separate heating system. From what I'm told, both units have the same boiler. But I will know for sure what needs to be done later on today.

    Thank you

    1Reply
  • Scott Schultz
    Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
    7y
    @Kristopher Shobe For a small purchase like that I would not partner, the only ship that doesnt sail Is a partnershIp. What would the purpose of the money sIttIng In an account for 30 days be? I often buy wIth cash an pull the money off a lIne of credit day of closIng.
    1Reply
  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    7y
    Originally posted by @Kristopher Shobe:

    My buddy and I would like to buy a duplex and our question is, could we each get a personal loan for 30k, let it sit in our accounts for 30 days and then use the combined funds to purchase said property out right? Property is 50k. Rent is $1540.

    What are the actual numbers?

    770 per side per month? What rehab is needed? This the max rent? What about CapEx expenses, insurance, taxes, yard/snowplow service, pest control, and vacancies and repairs.

    It sounds like a solid deal but couldn’t say without knowing more.  

    As far as a personal loan goes there isn’t a time you need it in your account.  

    **Money in your account for a period of time only applies to owner occupant loans for a residence.  That type the bank doesn’t want you borrowing money and then not accounting for it as a debt to income in your calculations. This does not apply to your situation 

    0Reply
  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    7y
    Originally posted by @Scott Schultz:
    @Kristopher Shobe For a small purchase like that I would not partner, the only ship that doesnt sail Is a partnershIp.

    What would the purpose of the money sIttIng In an account for 30 days be? I often buy wIth cash an pull the money off a lIne of credit day of closIng.

    I second this. And actually like the idea of cash purchase then a LOC immediately after. Nice

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    If the monthly payments on the loan are higher than the rent, how long is the loan for? Where will the short fall come from?  Have you factored in maintenance, insurance and taxes?  I'm guessing you have factored in some of those as the loan is for $60K total and the house is listed at $55K.  

    If the loan is short term (e.g. 24 months), how much are you short at the end of the month?  Short term, it may be worth it if in the long term you are going to clear that much every month.

    0Reply
  • Kristopher Shobe
    OP
    Member since 2019 · 15 posts · 3 votes
    7y

    Update:

    Just looked at the duplex, its a no go. The boiler is 30+ years old, there's a leak in the exterior wall one of the current tenants is on drugs and moving out, the other one is looking to leave.

    And to top it all off, none of the utilities are separate. Ill continue looking. Thank you everyone for all the advice!! As far as the partnership goes, I will need to look more into that as well.

    0Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Kristopher Shobe:

    Update:

    Just looked at the duplex, its a no go. The boiler is 30+ years old, there's a leak in the exterior wall one of the current tenants is on drugs and moving out, the other one is looking to leave.

    And to top it all off, none of the utilities are separate. Ill continue looking. Thank you everyone for all the advice!! As far as the partnership goes, I will need to look more into that as well.

     a clear case of "sounds too good to be true".

    0Reply
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