Advice on how to structure a partnership deal on first BRRRR

[Donna Page]

Scenario:

My dad owns an old Victorian home free and clear in an up and coming neighborhood near downtown Milwaukee that is being revitalized after falling into blight for several years.

The property is a 5 bedroom 2 bath home currently valued at around $50k and needs about $50k worth of upgrades and renovations to bring it to an ARV of approx $150k.

Our idea is for me to finance the renovation using cash on hand, offering the renovated property for rent for $1150 per month and then refinancing to pull 70% of the ARV ($105k) essentially returning both of our investments while allowing the rent to cover the mortgage, cap ex and any other expenses associated with the property.

We are both investors in income properties that provide excellent cash flow in this market but for this property we are more interested in holding it for possible equity appreciation over the next 5-10 years.

In addition to adding me to the deed as co-owner is it necessary to create a separate LLC for this one property or is it enough to have it titled and deeded in both names with each of us named as surviving beneficiary along with setting up separate checking and credit accounts for accounting purposes?

I am sure that I am unaware of or forgetting important considerations as we try to set this up so I welcome any feedback or suggestions that you may have on how to execute this if this deal make sense. 

[Marcus Auerbach]

@Donna Page thinking about your situation I am not so much worried about the legal side than I am about two very practical considerations:

1.) However you structure it, make sure that it does not undermine your ability to do the re-fi later. As you probably know if you are not already recogniced by a lender as a commercial investor it might be difficult to get a loan on a property that is owned in an LLC. Also consider DTI, income and credit score of both of you when you make the decision. Maybe a good idea to speak with your lender up front.

2.) I have always loved the idea to bring an old Victorian back to live! They are absolutley gorgous and full of amazing woodwork. With 5 bedrooms the property is probably around 2500 SF in size. Divide 50k by 2500 SF you end up with $20/SF. That is typically a light rehab, just a little better than paint and carpet. A full rehab is typically $35-50 a SF on a 1950s ranch. If you are planning to bring the home back in it's autentic architectural style you are probably looking at $60 or more per SF, which would be a 150k repair budget. I am concerned that you don't have the budget (that's fixable) and you don't have the ARV (that's a real problem!).

Feel free to PM me the address, so I can give you a little more specific feedback.