Sibling Partnership Strategy

5 Replies

I’m the older brother planning on paying all up front costs. My younger brother, new to his career with little capital, will be living in the house, paying rent, and acting as the landlord. I want to keep the agreement between us professional. I want to treat him as a tenant, property manager, AND a partner. I will pay him the property management fee along with a portion of the profit from rent. He will also be responsible for the market value of rent as the tenant. What I’m trying to find out is what percentage of the house should he own if he put nothing down. I want to make this purely business and fair for both of us.

@Michael Sawers There's no rule of thumb, that's really up to you. What's his sweat equity worth and how long will he have to be the landlord? Is he taking as much risk as you (i.e. is his name on the loan?)? These are all questions you want to consider.

Also, I would look into how to take title to avoid any estate issues.

@Michael Sawers This can become a touchy topic. To retain overall control, you should ensure that your name is on the title. There is no rule of thumb as @Dave Van Horn has mentioned but tread carefully. 

What are the terms and how long do you expect your brother to be the acting landlord? Have everything written down upfront to avoid confusions. Different people remember different aspects of conversations. 

Best of luck!

Have your lawyer draw up a legal partnership contract including any necessary exit strategies.

If it was me I would do a 50/50 partnership.

@Michael Sawers I agree with the other guys that you need everything in writing and I'd recommend an LLC. I did a deal with my brother and we kept everything professional and so far we have had zero issues.

It is up to you how much you want to split the percentage of ownership. I did my partnership 50/50 because my brother's name was on the loan and he paid half of the associated costs for the project. In your case, since you are investing all the money you might want to take a larger percentage. You could also treat your brother essentially as a property manager and pay him a percentage of the leases and a monthly fee for managing the property.  

You will also need to take into consideration the repairs and maintenance that goes along with the house. What is the percentage of R&M you pay versus what he pays. Over the tenure of you owning the house the R&M could be a significant expense. This should be written out in the operating agreement. 

50/50 and let his landlord role be his sweat equity rather than pay him a management fee. The potential rent of what his room would go for should be considered as well however.

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