Investor · Houston, TX · Member since 2019 · 6 posts · 13 votes
Hello BP Fam!
This is my post here and I hope you can help.
I currently have 3 deals in the works with different partners.
The deal: The partner fronts the 10% downpayment, puts the loan in their name and fronts the cash for the furnishings. In return, I will set-up and run the house as a short-term rental(my specialty). All profits will be paid to the partner until their initial investment is fully repaid. Once they are repaid, all profits will be split 50/50.
My question: Is there a way for us to draw up a contract that makes me a 50% owner, and equally liable for the debt? I can't be on the loan due to a high DTI.
I currently have 3 deals in the works with different partners.
The deal: The partner fronts the 10% downpayment, puts the loan in their name and fronts the cash for the furnishings. In return, I will set-up and run the house as a short-term rental(my specialty). All profits will be paid to the partner until their initial investment is fully repaid. Once they are repaid, all profits will be split 50/50.
My question: Is there a way for us to draw up a contract that makes me a 50% owner, and equally liable for the debt? I can't be on the loan due to a high DTI.
You can set it up so that your partner puts up the cash, you put up the work, and you both split the profits 50/50.
He just saidthe partner puts up the cash, he puts up the work and the profits will be split 50/50. Did you not read the post? You are telling him to do what he is already doing...yeesh.
His question was whether he can get the debt split legally 50/50, which is beyond...ummm...a bad idea. He is already getting 50% of the profits for doing low level grunt work without having to put in any cash or take on any debt. So he basically has zero risk and wants to take on risk by being on the loan somehow. I'm honestly astonished...
@Jack B. Relax. I was affirming his idea. He's obviously new and needs it spelled out. He didn't ask if it was a good idea, or if it was fair or if it will rain tomorrow. He asked an honest question and you went ballistic. No need for that here. People should feel welcome to ask their questions without your hostile answers.
I currently have 3 deals in the works with different partners.
The deal: The partner fronts the 10% downpayment, puts the loan in their name and fronts the cash for the furnishings. In return, I will set-up and run the house as a short-term rental(my specialty). All profits will be paid to the partner until their initial investment is fully repaid. Once they are repaid, all profits will be split 50/50.
My question: Is there a way for us to draw up a contract that makes me a 50% owner, and equally liable for the debt? I can't be on the loan due to a high DTI.
You can set it up so that your partner puts up the cash, you put up the work, and you both split the profits 50/50.
I currently have 3 deals in the works with different partners.
The deal: The partner fronts the 10% downpayment, puts the loan in their name and fronts the cash for the furnishings. In return, I will set-up and run the house as a short-term rental(my specialty). All profits will be paid to the partner until their initial investment is fully repaid. Once they are repaid, all profits will be split 50/50.
My question: Is there a way for us to draw up a contract that makes me a 50% owner, and equally liable for the debt? I can't be on the loan due to a high DTI.
You can set it up so that your partner puts up the cash, you put up the work, and you both split the profits 50/50.
He just saidthe partner puts up the cash, he puts up the work and the profits will be split 50/50. Did you not read the post? You are telling him to do what he is already doing...yeesh.
His question was whether he can get the debt split legally 50/50, which is beyond...ummm...a bad idea. He is already getting 50% of the profits for doing low level grunt work without having to put in any cash or take on any debt. So he basically has zero risk and wants to take on risk by being on the loan somehow. I'm honestly astonished...
I'm trying to be a good partner. I don't just want 50% of the profits, I want 50% ownership and stake in the houses we're buying. These are personal connections, I am not trying to take advantage of anyone here.
I'm doing all the work until everyone is paid back (roughly a year's time) and obtaining 50% ownership of a house I would be unable to get otherwise. I legitimately don't understand why that would be so jarring.
I'm trying to be a good part 78ner. I don't just want 50% of the profits, I want 50% ownership and stake in the houses we're buying. These are personal connections, I am not trying to take advantage of anyone here.
I'm doing all the work until everyone is paid back (roughly a year's time) and obtaining 50% ownership of a house I would be unable to get otherwise. I legitimately don't understand why that would be so jarring.
Deals can be structured however both partners agree. Here is problem...lets say you close on the house, and on day 1, you decide to walk away. Not saying you would, but that you could. You are out 0 dollars, and your equal partner is out the down, with a mortgage due. You have no risk whatsoever. If you were unable to fulfill your work, due to illness or something, would you pay a management company out of your pocket to keep the deal working?Equity is fine, but would probably need to be something like 1 to 2 percent per year, so that you didnt achieve a full 50 percent until year 30. I am in a similar deal right now, but I am building the entire project, not just staging a house and managing bookings.
At the end of the day, you can make any sort of agreement with the help of an attorney. In that agreement, the most critical wording is around being added to the deed once the milestone of your partners investment being paid has been met. And while you likely can’t be added to the mortgage directly, you’d have some options around either owing the partner a personal debt that is in lockstep with the mortgage (also attorney written) or you’ll need to refi out of the first mortgage and get another that you’re on (but will probably be mostly based on your partners’ credit histories)
At the end of the day, get in touch w an attorney and they’ll guide you through it all.
This is an easy fix. You get a JV agreement or a Partnership agreement and describe the deal and the details of each partner's contributions and how the cash will be repaid for the investment and thereafter. You are on the right track and know how to describe it. Contact your attorney or he can contact his and get this drawn up. Moreover, BP has professionals they recommend to help you. Good Luck!!!
Are you filing three 1065s (and perhaps associated state and/or local returns) for the three JVs?
It may be important to realize that you have created general partnerships for federal income tax purposes, as such, and unless you elect out under one of the limited exceptions, what you're doing falls under the purview of Subchapter K of the Internal Revenue Code.
The 1065 deadline is March 16th.
If you have the economies of scale, it may make a lot of sense to onboard a professional at this point. If you don't, you may want to structure these deals (in the short-term) in a way that minimizes your compliance costs and professional fees.
I currently have 3 deals in the works with different partners.
The deal: The partner fronts the 10% downpayment, puts the loan in their name and fronts the cash for the furnishings. In return, I will set-up and run the house as a short-term rental(my specialty). All profits will be paid to the partner until their initial investment is fully repaid. Once they are repaid, all profits will be split 50/50.
My question: Is there a way for us to draw up a contract that makes me a 50% owner, and equally liable for the debt? I can't be on the loan due to a high DTI.
You can set it up so that your partner puts up the cash, you put up the work, and you both split the profits 50/50.
He just saidthe partner puts up the cash, he puts up the work and the profits will be split 50/50. Did you not read the post? You are telling him to do what he is already doing...yeesh.
His question was whether he can get the debt split legally 50/50, which is beyond...ummm...a bad idea. He is already getting 50% of the profits for doing low level grunt work without having to put in any cash or take on any debt. So he basically has zero risk and wants to take on risk by being on the loan somehow. I'm honestly astonished...
@Jack B. Relax. I was affirming his idea. He's obviously new and needs it spelled out. He didn't ask if it was a good idea, or if it was fair or if it will rain tomorrow. He asked an honest question and you went ballistic. No need for that here. People should feel welcome to ask their questions without your hostile answers.
Correct me if I'm wrong, but it seems like OP wants to take responsibility for the debt since he will be splitting profits after the initial investment is repaid. I don't see a problem with that.
The one thing that no one here has mentioned, is you could do a subject to on this deal and quitclaim the property into an LLC that you both own. That way your partner can still deal with the risk of the debt, but you can also be a 50/50 owner.
I would also recommend the JV agreement like the others have recommended.
The one potential “downside” is the due on sale clause. But I wouldn’t worry about that if I were you. BP has a few podcast guests that have done hundreds of subject to deals and they all swear that the due on sale is nothing to worry about. I’m also business partners with a guy who has done over 3,000 deals. He has never seen a due on sale clause activated in his 15 years of experience.
Currently in the same situation, partner carries no risk but she is a STR prop manager. I am fronting DP, carrying mortgage and furnishing the home. We still need to write up a contract but so far obviously mortgage, utilities, cap ex, etc, any expenses for the home will be paid first. But she also know she has no skin in the game and she wants in so that we continue to do deals in the future, I'm lost on how she will gain her equity in the home since she's not on the deed/mortgage due to DTI as well.
@Ryan Proffit Thank you, Good Sir. They came to me because I'm an expert in the short-term rental world. But I'm not playing with pretend money, it's their savings. So you better believe I want equal liability on this deal to show them that I'm willing to go down with them if the deal ever goes south (which won't happen).
@Emily Lange and @Dylan Barnard, I am unable to help them qualify. The agreement is that this is "our" house. They put up the cash, I teach them how to Airbnb and make money in that world (which they know very little about). In return, they'll enjoy anywhere from a 30-50% ROI on their initial investment. So while I'm not on the deed, the idea is to figure out a way to make me an owner through some sort of contract.
@Adam Kuatt Yeah, the due on sale clause is scary. I know it's a rarity, but it's very hard to get an investor that's new to the real estate game on board with this when you explain what it means to them haha.
@Brian Boyd ok, got it and thanks. I'll get in touch with a real estate attorney. Just wanted to make sure that what I was looking to do was possible.
@Matt Groth I guess this scenario is possible? But that's why I want a contract that keeps me liable and equally tied to the deal. Though if I ever did walk away, they'd be making so much more money due to the nature of STR ROIs haha. But either way, I'd never give that up.