Triplex Deal Structure? HELP!!

3 Replies

I am an investor in the seattle Market. Me and a partner formed an LLC. We recently found a triplex that will cash flow 500$ a month in Seattle proper. Not having the income or the credit to qualify Me and my partner asked a wealthy family member to put up the 30 percent down payment, purchase the property in her name. Which she did.

         This angel investor doesnt ever want to step foot on the property doesnt want anything to do with it other than just a stable return on money.  So I am thinking of offering her a long term private loan  at 8 percent untill the loan is payed back.  She wants something in writing, my question is what would this type of arrangement be called and where do I even start with structuring this?

Here is what i  have done:

1)have an LLC that Tenants will write rent checks to, mortgage payments will be on an automatic withdraw from this account and then the cash flow after all expenses will go to pay the investor the loan

2) the LLC has an operating agrement between myself and my partner

so do I need a seperate "operating agreement" for this particular triplex?  the investor wants to know who will e doing everything right down to who is  mowing the lawn.???? this closes in 2 weeks and understandably the investor wants this done soon after closing any thoughts from you guys on how to put this deal in writing?

Its hard to say if there is enough money in the deal to pay the existing mortgage and also pay her 8% on her money but for the sake of argument let us say the net cash flow is enough which by the way you should have thought about before you went ahead with this. 

You might try two things. One, see if you can have her add you to the deed without the current mortgage holder be tempted to call in the loan. The other is to try (a subject to) and sign a second position over to her for her money in the deal. This will make you the owners with an existing first and a second to the your friend. Just seems like $500.00 a month is does not leave you much room for all this trouble. What will you be left with after all is paid and will that be worth all the responsibility and headaches you will have including dealing with vacancy rates and periods, managing the property etc. 

How long will it take to pay her off?  

If this somehow works then see if you can get your friend to report your payments to her on your credit so that at least you start to build up credit. 

If you do not have money now you will probably not have much money for a long time as well. I would hurry to save up money to at least make the payments on the first and build up a reserve to protect your friend's credit, that would be my number one priority. She believed in you enough to put her own credit and money at risk. 

Ask yourself how are you going to be able to build on this if for some reason all this works out for you. One thing I might consider is you and your partner to move into the building yourself so you can earnestly do everything you can to make sure the monthly payments get paid and so that in the future you can qualify for your own loan and not need to pay a property management company. 

Are you offering your friend the best protection she can have by having her sell the property to your LLC vs to both of you personally?

Remember she is personally responsible for making her payments to her mortgage company so it is wise of her to let you have the rents sent to your LLC.

There is the possibility that she can hire your LLC to be the property management company for her but how would that really help you become an owner or in building up credit?