Duplex Investment w/Daughter as Home Owner

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Duplex Investment w/Daughter as Home Owner

Rachel Deering
Dallas, TX · Member since 2017 · 13 posts · 2 votes

My 24 year old daughter and I were looking (and found) a duplex to buy in Pennsauken, NJ. Our plan was that it would be a primary residence for her with me as a co-signer and I would make the down payment and all upfront costs. She would get a great deal on the house and a lot more for her money than she would get in a rental. After she moves out, we will split any profit from renting the 2 units out. 

My question is what would be a fair way to structure this business deal? The market value of her unit is $1100 and the other is $700 per month.  The total mortgage including tax and insurance is about $1300. If she ONLY paid the balance of the mortgage payment after the other tenant's rent, it would only be $600 per month.  Of course we would need to add money to that to cover any property maintenance, vacancy in the other unit and the typical items that should be allotted for, so maybe she pays $800 or $850, with $200 or so going into account to cover those items, right? She plans to live there for no more than 2 years, at which point we can rent it out for more. 

I am investing $10,000 for down payment, initial repairs and a small emergency fund to start out with.  (When do I get that money back?) I have told her that this MUST be an investment for me because we are simply not in a position to be making a down payment on a house for my young daughter just to help her out and she, otherwise, would not even be buying a house by herself because she is not ready to take on that responsibility by herself. We need this money to start working for us, but we also want her payment to be as low as possible.

Please help with any ideas. Also, I'm in Texas. Do we need to set up an LLC in New Jersey? I need to find a tax person who can help us do this so that she can get the homestead exemption, but we can treat the other rental as a business. It seems very confusing to me and I need help! Thanks!

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  • Jonathan PfluegerPro Member
    Ben Lomond, CA · Member since 2016 · 338 posts · 337 votes
    7y

    @Rachel Deering

    Fair is having your daughter pay market rent - she has zero invested/risk, experience, and not much to offer other than she can pay rent. So the question is not "what is fair," but what are you comfortable doing? Fair is trading like value for like value - this is a handout of sorts (don't get me wrong, I am all for helping family out - it is just important we call it what it is and not confuse this with investing). 

    You say, "I have told her that this MUST be an investment for me because we are simply not in a position to be making a down payment on a house for my young daughter just to help her out..." and yet that is exactly what you are doing. You would be better off buying the duplex and renting it out at full market value to non-family tenants and having your daughter rent a small studio or room out of someones house. This way, when you sell, you can still pay her as much money as you want and you avoid any potential (and likely) sticky family situations, not to mention you make more money and lower your risk. 

    If you want it to be an investment treat it as an investment. If you want to do it to help out your daughter and you are stuck on having her live there, then figure out whatever split you are comfortable with. Ultimately, it just depends on what you are after - but do not confuse the two. 

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  • Rachel Deering
    OP
    Dallas, TX · Member since 2017 · 13 posts · 2 votes
    7y

    Thank you, Jonathan. Yes, you are right that I am, indeed trying to help her at the same time that I can help myself. One of the advantages to me doing it this way is that because it will be a primary residence for her, the down payment is much lower than a straight investment property. Also, she will maintain the property and be making updates to add value while living there - painting, pulling up carpet, refinishing hardwoods, landscaping, adding tile, etc....not big expenses, but certainly lots of labor and minor expense. I was hoping that this could be a win-win for both of us. 

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  • Tchaka Owen
    Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes
    7y

    @Rachel Deering -  what @Jonathan Pflueger said.

    If you want to invest AND help your daughter, there's a middle ground. But you must be willing to hold that line. You buy it and you rent it to your daughter for $1100/mo. Not a dime lower. 

    How are you helping your daughter? I can think of two important ways.

    1. She's learning responsibility of homeownership. 

    2. She is contributing to the investment of which she'll eventually have ownership of. 

    All rents go into the bank account set up for the property and once there's a decent amount in it, you reimburse yourself for the emergency fund. Over time you can pay yourself back for the down payment, or wait until you sell it. Either way, you'll come out ahead as will your daughter. But she needs to contribute other than simply having your DNA. Good luck!

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