Author Topic: Purchasing property with a friend - LLC?  (Read 1355 times)

sonnys

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Purchasing property with a friend - LLC?
« on: August 20, 2014, 07:35:22 PM »
Hello all,

I am interested in purchasing an investment property with a friend.  I was initially thinking that we would create a LLC but it seems that it makes finding a lender more difficult.  We would be looking to purchase a single family home so a 30 year fixed mortgage would be ideal.  Has anyone done anything similar and could you share your experience?  Is there another way like a joint venture document and then umbrella insurance?

Thank you,
Sonny.

usmarine1975

  • Guest
Re: Purchasing property with a friend - LLC?
« Reply #1 on: August 20, 2014, 08:19:54 PM »
My honest thought is how long do you want him or her as a friend.  Families do this and end up in feuds. Some are successful at it.  Only you can know if its really a good idea.

sonnys

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Purchasing property with a friend - LLC?
« Reply #2 on: August 21, 2014, 01:27:34 PM »
Yes, we have fears about that as well, that's why we would like to minimize the risk by having an official document that puts everything in black and white.

usmarine1975

  • Guest
Re: Purchasing property with a friend - LLC?
« Reply #3 on: August 21, 2014, 03:03:52 PM »
I would have extensive conversations about the what if's in your venture.  I have worked with many in which partnerships did not work out and they no longer get along.  Again it's not always the case just better to have an out or a way to deal with it if need be.  Also might want to consider Life Insurance to cover both of you in the event one of you would die prematurely.  To cover the debt and or the loss.  They call em buy sell arrangements. 

Hamster

  • Pencil Stache
  • ****
  • Posts: 623
Re: Purchasing property with a friend - LLC?
« Reply #4 on: August 21, 2014, 07:17:47 PM »
We went through a purchase and joint ownership with friends. In the end, we made it work, and it was great financially but it wasn't as clean as we'd hoped.  It can be messy on many levels - mortgage, title, taxes, decisions about when to sell, DIY vs hiring someone and how to share work equitably, etc.

Once you get a basic sense of what you want to do, the first step (because it is free) would be to find a bank who will issue a loan for 2 unrelated borrowers. Some banks may not work with you at all. Get pre-aproval so you know how much you can borrow for your investment.

Then talk to a real estate attorney and prepare a co-ownership agreement or partnership agreement. They should be able to talk you through issues of the type of title arrangement you want - survivorship vs joint tenancy, as well as putting in writing your plan around how to deal with disagreements, decision-making, arbitration, etc.

There are also issues of taxes and how you split the mortgage interest deduction, depreciation, and then at time of sale, the capital gains, depreciation recapture, etc. Joint ownership may also make it harder (impossible?) to set up a 1031 exchange when you sell, if that's something you want to do.