Rental Property Investor · Reno, NV · Member since 2013 · 52 posts · 10 votes
BP, I am hoping to get some guidance and see if anyone has gone this route before. A partner and I are looking at a few SF homes. The plan is for the partner to actually live in the house. We would also to get 1 or 2 other roommates in the house.
Has anyone ever had this type of arrangement? I am trying to think of how the finances would work. Who gets the tax write offs, do we lose the depreciation tax breaks? If someone has done this how would you structure the deal to make sense for both parties?
Real Estate Broker · San Leandro, CA · Member since 2010 · 47 posts · 10 votes
12y
Hi, answer these questions:
why are you doing this?
What is your exit strategy?
Are you planning to put it in writing?
What if one partner wants out before the other?
Who pays for repairs?
Check with your accountant about taxes and depreciation, probably not if it is primary residence.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
First, I'll say "no way"! I don't like partnerships, and absolutely do not like unequal partnerships. Before you even start spend a few hours and a lot of discussion to sort out every possible contingency. What happens if the property needs money and one of you doesn't have it? Or one of you desperately needs money? What if he dies or gets arrested? Can you rent the house to someone else? Who inherits each of your interests if one of you dies?
What is the effect of the (huge) financial benefit he's receiving on the partnership? Conversely, how does the fact he's managing it on a day to day basis contribute? This is what I mean by an "unequal partnership". The benefits and expectations for the two of you are radically different w.r.t. this property. That's almost guaranteed to cause problems and hard feelings down the line.
Is this essential? His living there is, IMHO, a HUGE complexity. Is that essential? Better to set it up as a more equal partnership with neither of you living there.
For taxes, you MUST find a good, real-estate knowledgeable accountant and discuss the details with him. Yes, you will lose some of the tax benefits because he's living there. All expenses, income, depreciation and any other deductions or costs apply to the partnership. At the end of the year, your account will figure out how much of the profit or loss nets out to each of you. He or she will issue K-1's from the partnership to each of you. Then you use those on your personal taxes.
Rental Property Investor · Reno, NV · Member since 2013 · 52 posts · 10 votes
12y
Thank you so much for the responses. Really helped to clarify how unequal this partnership would be.
The reason for the partnership is that we are trying to combine finances, since neither of us have a lot. My partner actually lives in the area that we want to invest in.
The long term plan is to just use this as a buy and hold.
We were planning on splitting all the repair costs.
Great insight though, I think we will have to go back to the drawing board and see what type of property would truly benefit both of us.
Homeowner · TX · Member since 2024 · 1 post · 0 votes
2y
Any investors want to save a family home? I battle Crohn’s Disease. 4 hospitalizations in the last year, and unfortunately I missed two payments. The county auctioned off my house and now we face evict