Joint landlording / Landlording as a couple? - Philadelphia

General Landlording & Rental Properties
6yFollow

Joint landlording / Landlording as a couple? - Philadelphia

Kelsey Herbst
Rental Property Investor · Philadelphia, PA · Member since 2020 · 30 posts · 17 votes

Hey BP!

I was just informed an offer I made on a West Philly home has been accepted and we are starting the closing processes. I will be house hacking a triplex with an FHA loan and inheriting two tenants plus a garage space renter. Because my long term partner has always worked as an independent contractor, I am the one who had to apply for the mortgage because of my W2 history. Once we close we will be looking to add his name to the deed and have dual ownership and splitting all costs and mortgage payment equally (although the mortgage will still be solely in my name).

Does anyone know if we could both be the landlord entity of the property? How should we go about doing this, and is there any weird legal Pennsylvania laws prohibiting this sort of thing? Is there pro's and con's to being either a joint landlord or myself just being the only landlord? 

Thanks in advance for any insight!

1Reply
141 views

Most Popular Reply

JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
6y

This has "Danger Will Robinson" written all over it. 

1. Who is putting in the down payment? 

2. Why aren't you applying for a joint mortgage? That should make your application stronger, not weaker, and make both of you responsible for the liability.

You are asking for trouble having a "partner" own part of an asset he has no financial liability in. 

Podcast Guest on Show #243
Skyline Properties
View Page
5Reply
See this reply in the discussion

34 Replies

Jump to latestLatest
  • Jon Reed
    Rental Property Investor · Springfield, MO · Member since 2019 · 462 posts · 365 votes
    6y

    Hello! 

    I am not a lawyer so first up... go ask a lawyer in your area about any weird local laws you need to be aware of.

    Second, get an LLC and make you and your partner 50/50 owners of the LLC. Then have all leases written up to the LLC. Problem solved + some extra liability protection.

    0Reply
  • Kelsey Herbst
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2020 · 30 posts · 17 votes
    6y

    @Jon Reed Thanks for the insight! I was under the impression that FHA loans could only be given to individuals, so I'm not sure if that would disqualify us from one of those loans in the future, additionally since we got the mortgage under my name, but then operate as an LLC, that sounds like the rules are also being broken as well... do you know anything about this?

    0Reply
  • Jon Reed
    Rental Property Investor · Springfield, MO · Member since 2019 · 462 posts · 365 votes
    6y

    So, you would have the home under your personal name to get the FHA loan. You would then make an LLC to manage the rental side of the home. You would be 'hiring' the LLC you created to manage the property.

    There is nothing shady or illegal with having an LLC to manage the property while having it titled under your personal name.

    0Reply
  • Kelsey Herbst
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2020 · 30 posts · 17 votes
    6y

    @Jon Reed ahhhh I see! Good to know, I'll definitely look into this. Thanks :)

    0Reply
  • Wesley W.
    Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes
    6y

    @Jon Reed is correct. I do the same. I have an operational LLC that manages my properties, which are all held in personal names. The only thing I disagree with Jon about is there is no additional liability protection with this model because the LLC is not the owner of the property, merely the manager.

    You don't necessarily have to form an LLC to do this, Kelsey; you could probably just do a DBA that has both your tax IDs associated with it. As Jon mentions, check with a local attorney to be sure on these things.

    Good luck!

    2Reply
  • Kelsey Herbst
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2020 · 30 posts · 17 votes
    6y

    Thanks @Wesley W., I'll look into a DBA compared to an LLC

    0Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    6y

    What about getting married and making up the rental contract in his name? That's what we do. Tenants have no trouble understanding that my wife runs the show and to do what she says even though I am the titular landlord.

    Just thought I'd advance the umcomplicated mom and pop approach.

    1Reply
  • Kelsey Herbst
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2020 · 30 posts · 17 votes
    6y

    @Jim K. Haha definitely not ready to get married just to make our rent collection and future taxes less of a hassle, but essentially we would like the rental income to be received "on the record" to both of us, if not instead something like an LLC.

    1Reply
  • Choeying Phunsur
    Member since 2019 · 2 posts · 0 votes
    6y

    @Kelsey Herbst

    Congrats! I don't have any insight, but I was just wondering which area in West Philly are you in? Of course you don't have to share it if you don't want to.

    Thank you !

    0Reply
  • Kelsey Herbst
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2020 · 30 posts · 17 votes
    6y

    @Choeying Phunsur we are close to SJU !

    1Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    6y

    So liability (mortgage) is in your name. Asset is in both names. Then you have an operating entity in both names (llc). I think you need to carefully write up the Llc operating aggreement to cover this. You might want some legal advice when you do this so you are covered when you sell the property. Also for taxes. Better to Do it before you close.

    1Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    6y

    This has "Danger Will Robinson" written all over it. 

    1. Who is putting in the down payment? 

    2. Why aren't you applying for a joint mortgage? That should make your application stronger, not weaker, and make both of you responsible for the liability.

    You are asking for trouble having a "partner" own part of an asset he has no financial liability in. 

    Podcast Guest on Show #243
    Skyline Properties
    View Page
    5Reply
  • Rob B.
    Chicago, IL · Member since 2018 · 546 posts · 227 votes
    6y

    I think some others have mentioned it above, so don't want to sound like an echo chamber but Jon has it down. Plenty of real estate owners go the LLC route. Either way you've gotten a lot of good advice on this thread!! Let us know how everything goes and congrats on closing!

    0Reply
  • Kelsey Herbst
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2020 · 30 posts · 17 votes
    6y

    Thanks @Colleen F. and @Rob B. !

    2Reply
  • Kelsey Herbst
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2020 · 30 posts · 17 votes
    6y

    @JD Martin My credit is slightly better, and I have the W2 work history, it would be stronger and easier for myself to finance the property, additionally in the future when we go to purchase additional properties, having units in each of our names rather than combined will allow for more financed properties overall. I don't think I've heard of many investors doing joint mortgages, it just doesn't make much sense. I am making the down payment and he is paying off the loan 50/50 with me, and will be doing the sweat equity on fixing up the property. 

    1Reply
  • Dan Schwartz
    Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
    6y

    @Kelsey Herbst lots to unpack here.  It sounds like you are creating a business partnership with your long term partner, whereby the two of you will share in the profits of the enterprise.  

    Unless you can talk your tenants into writing two checks every month - one to you and one to your partner - you need a formal partnership agreement.  You’ll also need to file a 1065 partnership return each year to report the income to the IRS and pay the appropriate taxes (if any).  

    Partnerships carry a lot of liability exposure, so the advice to look into an LLC is a good one. I know zero about PA LLC law (each state writes its own LLC law, so beware of any advice from BP members who don't live or operate in PA), so I can't offer any advice other than it's worth looking into.

    On a technical basis, you are acquiring an asset with your personal funds, and with your personal credit securing the financing needed to close the purchase.  As part of forming a business partnership, you will be contributing this asset and liability to the partnership.  Your long-term partner will contribute nothing upfront.  That’s your business, not ours, but just pointing it out.  

    Your intention with the partnership appears to be to gift half of the asset to your long-term partner via addition to the deed, share the income 50/50 after you both contribute to the mortgage payment, and keep the liability as solely your responsibility.  Again, that’s all fine, but I’m pointing out the mechanics of it.  

    If you want to simplify things, you might keep the asset and liability to yourself, forgo the partnership structure, and pay your long-term partner for the sweat equity that will be contributed.  And/or a fee for managing the property.  

    This excludes your long-term partner from participating in any appreciation, but you could always choose to gift that, tax-free, up to $14,000 annually.  You might need to form an entity at that point, since you’d be co-owners upon the gift, but maybe it would be less overwhelming to do that down the line, after you are established.  

    There probably aren’t any crazy laws prohibiting what you are trying to do, but your very first stumbling block (aside from liability exposure....especially with a garage renter) will be when you go to do your taxes the first year.  

    Good luck and run this all by professionals!! :-)

    3Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    6y

    I would seriously consider putting this one in both your names or one of your names. I would not mix and match by putting his name on the deed but not on the mortgage. To me, it doesn't make sense, he is not on the hook for the liability, so no name on the deed. And that still follows your plan of financing more properties because you can both get mortgages. Not sure what it does for the operating LLC but ask a lawyer on that. you can still be a business partner without owning an asset.

    Although We personally have not had a problem I  know others who have split and had issues because of the way they held property. 

    1Reply
  • Joe White
    Property Manager · Philadelphia, PA · Member since 2015 · 515 posts · 196 votes
    6y

    The property can't be House Hacked without him? Two tenants; plus the garage rent seems like it would bring you close on this. Any intention to renovation would be done with a private loan, hard money, or up front with a construction loan based upon its AVR (like a 203k loan).

    0Reply
  • Kelsey Herbst
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2020 · 30 posts · 17 votes
    6y

    @Joe White the plans for renovation would be slowly as we will be living in one unit for a year or two, and using both of our income to fund the renovations as we will be living almost for free. And once the current tenants move out we will spruce up their units and raise rents is the plan. 

    1Reply
  • Kelsey Herbst
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2020 · 30 posts · 17 votes
    6y

    @Dan Schwartz this is super insightful, thank you for the reply!

    2Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    6y
    Originally posted by @Kelsey Herbst:

    @JD Martin My credit is slightly better, and I have the W2 work history, it would be stronger and easier for myself to finance the property, additionally in the future when we go to purchase additional properties, having units in each of our names rather than combined will allow for more financed properties overall. I don't think I've heard of many investors doing joint mortgages, it just doesn't make much sense. I am making the down payment and he is paying off the loan 50/50 with me, and will be doing the sweat equity on fixing up the property. 

     What happens if he doesn't pay on the loan or do any of the sweat equity? Plenty of people do joint mortgages, it happens all the time. 

    You are taking a serious risk and (from your picture) appear to be young. People break up all the time. You don't even have the benefit of the law to protect you in a basic marriage arrangement. I know in your mind/heart you guys will always be together and will have a great time doing this, but reality is stacked against you. Don't compound the pain by making a financial decision that is not in your best interest. This is what I would tell my own daughter and I would guess what your father and/or mother would tell you. 

    Podcast Guest on Show #243
    Skyline Properties
    View Page
    4Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    6y
    Originally posted by @Kelsey Herbst:

    @Jim K. Haha definitely not ready to get married just to make our rent collection and future taxes less of a hassle, but essentially we would like the rental income to be received "on the record" to both of us, if not instead something like an LLC.

    So you're ready to live together and run your real estate business together, but marriage...it's just too soon.

    You know those horror movies where Brad and his girlfriend hear the grunting noise in the barn and decide to go investigate together? The audience knows it's not a good idea but they never seen to have a clue? This is a remarkably similar situation. Don't do it! DON'T GO IN THAT BARN!!!

    5Reply
  • Omua Ahonkhai
    New to Real Estate · Philadelphia, PA · Member since 2018 · 12 posts · 4 votes
    6y

    No insight to offer -- other than I think it's weird to get married just to start a real estate business, probably shouldn't follow that advice,lol.  But I think everyone on here has the best of intentions.  Congrats! Sounds like a great house hack!

    2Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    6y
    Originally posted by @Omua Ahonkhai:

    No insight to offer -- other than I think it's weird to get married just to start a real estate business, probably shouldn't follow that advice,lol.  But I think everyone on here has the best of intentions.  Congrats! Sounds like a great house hack!

    So weird to consider getting married when you sleep together, live together, and you've already written up a business plan that involves years of doing business together with clearly defined traditional mom and pop landlording roles for the both of you -- he's the fixer and handles tenant relations, she's the bookkeeper and handles the money. It would be a true trailblazing move for a bright, financially-forward-thinking young lady looking for her one true and perfect soulmate in life to tell her handyman beau to s**t or get off the pot before she takes on legal liability for paying for the full mortgage on their first triplex.

    Because there's zero chance the beau will call up the stairs one fine morning, "Yeah honey, going out for a pack of smokes, be back soon!" And then disappears and changes his phone number.

    That NEVER happens, after all. Not once in the history of civilization.

    1Reply
  • Omua Ahonkhai
    New to Real Estate · Philadelphia, PA · Member since 2018 · 12 posts · 4 votes
    6y
    Originally posted by @Jim K.:
    Originally posted by @Omua Ahonkhai:

    No insight to offer -- other than I think it's weird to get married just to start a real estate business, probably shouldn't follow that advice,lol.  But I think everyone on here has the best of intentions.  Congrats! Sounds like a great house hack!

    So weird to consider getting married when you sleep together, live together, and you've already written up a business plan that involves years of doing business together with clearly defined traditional mom and pop landlording roles for the both of you -- he's the fixer and handles tenant relations, she's the bookkeeper and handles the money. It would be a true trailblazing move for a bright, financially-forward-thinking young lady looking for her one true and perfect soulmate in life to tell her handyman beau to s**t or get off the pot before she puts down a down payment on their first triplex.

    OMG, I can't even.

     I respect your position.  Didn't meant to offend.

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free