Author Topic: Considering buying a rental property with family member  (Read 2079 times)

pl28

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Considering buying a rental property with family member
« on: February 16, 2014, 05:39:05 PM »
Hi, I was wondering if anyone can offer any advice on buying a rental property with family. I search on the web and most other website offered advices that are pretty cautious or just flat out say Don't do it. I understand the potential issues and conflicts that may results in straining our relationships due to business reasons. However, I do trust my family and we are going into this as a business and we plan on having all goals and strategy documented so all parties know what the plans are.

So with that all said, me and my sister are planning on buying a place. The cost of the place is about 130-150K and we plan on something like 60/40 split. The rents looks to be about $900 to $1000 a month. We'll keep all money in a business bank account and divide up profits (if any) at the end of the year after expense. One of the question I have is how to hold the title? From doing some research, looks like "Tenants in Common" would be best since we are not doing 50/50 split. I did look into an LLC but I'm not sure if that's worth all expense or trouble right now; eventually we may go down that path.

Anyway, if anyone can offer any suggestions or advice(s), it would be appreciated.

Thanks in advance

stevesteve

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Re: Considering buying a rental property with family member
« Reply #1 on: February 16, 2014, 06:31:05 PM »
If you do it make sure you set it up 1) with a clearly saying who has decision making powers, 2) how you dissolve the partnership, etc.  Trust needs written rules.

Also, LLCs serve to protect your assets from liability in some cases.  That's one reason people do it.

arebelspy

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Re: Considering buying a rental property with family member
« Reply #2 on: February 16, 2014, 06:37:00 PM »
The cost of the place is about 130-150K and we plan on something like 60/40 split. The rents looks to be about $900 to $1000 a month.

I know it's not what you're asking, but I can't really let it slide... That's a pretty bad return.

You're looking at maybe 4% or so.  You can easily beat that, with a lot less work, less hassle, and less risk, with straight equities or even a REIT.

Consider looking for a better investment.

To answer your question, I'd probably set up an LLC from the beginning in your scenario.  The money isn't coming from either of your self directed retirement accounts or anything, right?  Cause that will cause things to be done differently.
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pl28

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Re: Considering buying a rental property with family member
« Reply #3 on: February 16, 2014, 08:08:36 PM »
@arebelspy and @stevesteve, thanks for the replies. I'll take any suggestion or advice that seasoned investors dish out. I know the 4-5% return is not great but I'm usually conservative with my numbers. The current rental market for a 3 bed 2 bath is averaging about $1.2K per month but I would probably list it a bit lower to attach more applicants (if that make any sense).

Anyway, as for the LLC, that's probably a good idea. But from my quick research it seems that getting financing with a LLC is a bit more trickly. So I was thinking that if we buy as co-owners, then down the road convert to a LLC..would that be a good plan?

Thanks again.

arebelspy

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Re: Considering buying a rental property with family member
« Reply #4 on: February 16, 2014, 10:07:39 PM »
Listing a property slightly under market to attract the best tenants is a viable strategy, but there' same huge difference between 1200 rent and 900. You need to nail down your numbers.  Even at 1200 rent I wouldn't buy the place personally, but it may fit your goals.

You never said anything about financing.  :)  It sounded like you were buying cash for 140k, split 60/40. That will certainly affect a few things.

As far as financing, it will be tricky to get anyways due to both of you having to qualify for it, or it being purchased in one person's name.   The LLC probably won't add any more hassle than you'll already have to do, though with the LLC you'll most likely have to personally guarantee it anyways (same as you would if it wasn't in an LLC).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.