Purchase a property with two people on the title but only one on the mortgage?

Question

My daughter and I are considering buying some property together somewhere between Spokane and Medical Lake.  My part of the purchase would be cash.  Her part would be a mortgage.  Is it possible for us to both be on the title with only my daughter on the loan?

Clint Coons · Answer

@Anthony Pitruzzello  This is definitely doable and can be structured in a way that works for both of you. Your daughter will acquire the property in her individual name, using funds from you for the down payment. As @Chris Watkins mentioned, it’s important to ensure that the funds are properly allocated to her to avoid any issues. For example, you may want to transfer the funds into her account now so they are seasoned for at least two months before the purchase (Chris can provide more specific guidance on this step). Once the property purchase is complete, you should consider placing it in a land trust. I recommend using a land trust to help avoid the lender potentially accelerating the note if they discover the transfer. This provides an extra layer of protection and flexibility for your future plans.

After the land trust is in place, have your daughter transfer her interest in the trust to an LLC that the two of you collectively own. Your post suggests that you might be considering making multiple investments together, so it may be worthwhile to set up a holding LLC with both of you as its members. I personally recommend setting up the holding LLC in Wyoming due to the enhanced privacy and asset protection benefits. Once the holding LLC is established, you can create single-member LLCs under it to hold each individual investment.

The reason I bring this up is that if you set up a separate LLC for each of your investments without a holding LLC, each individual LLC will be treated as a partnership for federal tax purposes, which would require the filing of separate partnership tax returns for each one. However, if you use the holding company approach, the holding LLC will be treated as the partnership entity (since it is owned by the two of you), while the single-member LLCs under it can be disregarded for tax purposes. This means the single-member LLCs won’t require separate tax filings.

Additionally, it’s critical to seriously consider consulting with a professional for setting up your overall structure. There are many factors and legal nuances to consider when partnering with someone, even if it’s a family member. Proper structuring can ensure that both of you are protected and can avoid complications down the line. For example, you may need to address issues like profit-sharing agreements, decision-making processes, and contingencies for future changes in ownership or management, divorce, death or lawsuits. These are all important details that should be carefully thought through to ensure everything is set up smoothly and in alignment with your goals.

Ken M. · Answer

Bottom line is "Yes" that is done all of the time.

I have bought properties from families that had 4 to 6 people on title. All paid their portion in cash when they originally bought. Brother, sister,  brother & sister in law, mom & dad. No bank accounts involved. Since it's illegal to ask, I could not vouch they were all here legally. But their purchase a few year ago was legal. Escrow had no problem closing on my purchasing it from them. Other purchases have been where brother & sister-in-law used a loan, the other couple paid cash for their part.

Clint Coons · Answer

@Jerry W.  Sorry, but I am confused by your comment. What do you mean by "whole fake facade"? I recommended creating one LLC that will be treated as a partnership for federal tax purposes. A partnership provides each partner, Anthony and his daughter, with a K-1 representing their share of partnership income and liabilities. This information is reported on their 1040 Schedule E, page 2. The partnership return will include each of the properties held by the partnership via the disregarded LLCs I suggested in my initial post. All of this would be fully discoverable by a lender through their 1040 filings. What exactly is “not honest” about putting properties into an LLC? I did not suggest hiding the fact that Anthony holds an ownership interest in an LLC that owns real estate, so your statement has me genuinely confused.

Generally, in my experience, underwriters will request copies of the partnership’s Form 1065, along with the P&L statements and balance sheet, in certain situations. The partnership return will disclose all ownership interests held by the disregarded LLCs. Specifically, it will appear on the 1065 as if the partnership owns the property directly. Furthermore, if Anthony moves forward with creating a separate LLC for each property, as he initially suggested, he will need to file multiple 1065 returns each year since each LLC would be treated as its own separate partnership for federal tax purposes. I was offering a solution to avoid that scenario because filing multiple partnership tax returns can become costly, requiring extra CPA fees, and can also slow down the underwriting process. As I mentioned earlier, underwriters will likely request copies of each partnership return, which adds another layer of complexity and potential delays. By creating one LLC structured as a partnership, Anthony can consolidate the ownership of all properties under a single tax filing, saving both time and money while still being fully transparent.

Regarding the due-on-sale clause, that is a separate matter. Yes, if you move a property into an LLC and the mortgage is not yet owned by Freddie Mac or Fannie Mae (you can verify this information using their loan lookup tools online), there is a risk that the lender could accelerate the note. In my 27 years of practice and after easily recording over 15,000 deeds, I have only seen this happen a handful of times, and it’s usually in specific situations, such as subject-to transactions or cross-collateralized loans. Your experience may differ, of course. For clients who are concerned about triggering the due-on-sale clause, I typically suggest using a land trust strategy as an alternative to transfer the property into the LLC. This approach can help mitigate the risk while still allowing the property to be effectively managed under an LLC structure.

Hopefully, this clears up any confusion. If there is something specific you’d like me to address further, let me know, and I’d be happy to elaborate!

Stephanie Medellin · Answer

I can't tell from your post whether this is an investment property, or if your daughter will live in the home.

From a lending perspective, if you won't be a borrower on the mortgage, the cash you're contributing will be viewed as a gift - even if you're also on title.

Conventional investment loans do not allow gifts for an investment property, but there are  non-QM loans that will allow gifts on an investment property.  You will need a loan that allows gifts.  As an alternative, you could be a co-borrower on the mortgage (assuming this doesn't negatively impact loan qualification), even if your daughter intends to make the payments.

If your daughter will live in the property, a gift is allowed on most loan programs.

Jerry W. · Answer

SO @Clint Coons, if they want to buy several houses like this what happens when they update their personal information yearly with their financial statement and tax returns?  The LLCs will show up on their personal return, as well as their individual ownership interest.  The personal financial statements require them to list every entity they have an ownership in as well as the percentage.  That would show the whole fake facade and possibly be cause for the due on sale clause being invoked.  Why not just be honest?  You could lie on your financial statement, but that is how Trump got his felonies.

@Anthony Pitruzzello, I would not use this method to purchase property.  The multiple entities, the yearly reporting requirements, the cost of setting the entities up, the book keeping in keeping them sorted, the registered agents, the FinCen reporting, well you get the idea.  It is easy to worry about so manyn things.  Your main worry should be finding an investment that actually makes ense, not worrying about minute details for one small part of your plan.  You need protected, but you don't need to live in an armored car.

Phil Wells · Answer

Entirely possible - this is actually very common though you see it more with spouses.

If this is purely an investment you'd be wise to seek legal advice on a partnership agreement or LLC articles.

Chris Watkins · Answer

Yes, that is possible. It's easiest for you to be added to the title after the transaction, to not muddy up the loan process. You should get the cash into one of her accounts as soon as you can, as well, to avoid extra paperwork during underwriting. Let me know if you need more specific guidance.

Purchase a property with two people on the title but only one on the mortgage?

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