Bethlehem House Hacking with Brother- Any help is appreciated!

[Belen Gamarra]

Hi BiggerPockets community,

My brother and I are exploring purchasing our first multifamily property together in/near Bethlehem, PA, and I’d love insight from experienced investors who’ve structured similar partnerships.

He lives in Bethlehem and would move into one of the units as part of a house hack strategy. He’d also primarily manage the property and contribute the operational/sweat equity side of the deal. I live in New Jersey and currently have relatively low living expenses, so I’d be contributing most of the upfront cash.

I currently have about $30.6k liquid, though ideally I would not want to deploy all of it into the property. My brother's cash is more tied up in his 401(k), though he does have VA loan eligibility that may come into play for a future property rather than this one.

We’re trying to approach this conservatively and structure things fairly from the beginning.

A few questions I’d love insight on:

How much does it generally make sense to keep in reserves for (Keeping in mind that my brother will be house hacking for the beginning of this deal) :

-Cap Ex

-Vacancy

-Repairs/maintenance

-Emergency operating reserves

and for a situation like this, how would you typically think about structuring:

-equity splits

-preferred returns

-cash flow distributions

-buyout/refinance structures

Since I’d be contributing more upfront liquidity while he’d be handling management and occupying the property, I’m trying to understand what experienced investors feel is a fair and sustainable structure long term.

Any advice, lessons learned, or mistakes to avoid would be hugely appreciated. Thank you!

[Aaron Zimmerman]

On expenses, it  depends how old the building is. If it's old, I'd be budgeting 10% of rents for each of those categories. 

for emergency reserves, I like to have $10k or about 3 months of expenses per property.

on equity splits, it depends. Something that I think works is having everything be 50/50 and the person doing more of the work contribute a monthly amount that's meaningful to them so the total amount invested equalizes. So if you're contributing $20k and partner is contributing $8k, the partner contributes $1k a month until you're 50/50. For a 2 person deal, I think preferred returns are complicating this so I wouldn't.