Author Topic: Should I buy a rental with my dad?  (Read 2650 times)

Megma

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Should I buy a rental with my dad?
« on: December 02, 2015, 01:40:03 PM »
I have been looking at buying my first rental property for about a year, saving for a down payment/oh fuck $$, while I analyzed the properties for sale in my area an insane amount. At this point, I am a few months away from having all of the money I need saved and making the plunge. I also have a type of property in mind and have talked to a family friend who owns several of these kinds of rentals, she is happy to advise me further (share her lease, policies, etc).

Maybe 6 months ago, I asked my dad if he wanted to go in on a property with me. I was thinking this would mean I could buy something earlier and in some ways provide some stability. He said no (he does maintenance on a low-income apartment complex as a side job and he said he has seen too many places get trashed) but now he is changing his tune. He told me today that if I find a property and will manage the tenants, he wants to invest with me.

My dad and I have an honest, if not "close" relationship (parents are divorced, mostly raised by mom) but when it comes to money he is very solid. I don't know what his assets are exactly, but he told me he would have 15k to invest and he is a hardcore saver.

I live half way across the country from him and we would choose something in my area because 1) he doesn't want to manage the tenants and 2) the rent prices in his area are way to low compared with the costs of buying (a 110k property can go for 1500/mo+ in my area vs a peak 900/mo in his area), so this means even though he would be very useful in doing maintenance, he would likely not be able to do it. He would advise me via phone regardless if he was my partner or not, but that only helps so much.

One final consideration, when my father passes away, this means that his 1/2 ownership would be split 3-ways with myself and two siblings, which would be an absolute nightmare for me, as we do not get along. Maybe I should only do this if he is willing to stipulate I get his whole 1/2 should he pass away in his will? Is that unfair to him?

So what do you think MMMers?
1) Should I buy with my dad as a partner or go it alone? I would feel a little bad saying no to him now since it was my idea to begin with.
2) If I buy with Dad, how do you suggest us to structure the ownership? (ie we are both part of an LLC, or we just keep a rental account with both names and both names on the deed/leases? etc)
3) Has anyone had successful partnerships with family members? Or horror stories to share?

DaveR

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Re: Should I buy a rental with my dad?
« Reply #1 on: December 02, 2015, 04:18:33 PM »
I would set up an LLC, ownership % based on dollars invested. Contracts, bank accounts, etc in the LLC's name, not personal. And pay yourself a property management fee (that you both agree on) along with fees if you do maintenance work, cleaning, etc. Make sure you know how you will handle major costs (like a new roof)--will you both put in cash on a pro-rata basis?

If your dad passes, he can will his piece however he wants. But if structured such that your percentage plus a percentage willed to you from your dad gives you majority control, your siblings won't have a lot of say. There are plenty of ways to set up change of control provisions that will protect everyone, you just need to think it through up front.

arebelspy

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Re: Should I buy a rental with my dad?
« Reply #2 on: December 02, 2015, 04:21:20 PM »
I don't see much upside, and lots of potential downsides.

You're a few months from being able to do it on your own.  I wouldn't take on a partner for a mere 15k, that adds all the hassles of someone possibly second guessing you, having to consult with them before making decisions, etc.

That's aside from the family issue, just in general.

Way too much can go wrong for the tiny benefit of getting 15k and investing a few months earlier than you would otherwise.

Do some on your own, then decide if you want a partner, and, if so, if your dad is the right one.
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Papa bear

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Re: Should I buy a rental with my dad?
« Reply #3 on: December 02, 2015, 04:27:18 PM »
Can you borrow the money from him?  Set it up properly so he earns and everyone reports interest.  He can make a few $ and you can get some cash that you need.


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Megma

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Re: Should I buy a rental with my dad?
« Reply #4 on: December 03, 2015, 12:26:41 PM »
Thanks for the responses, this is more or less what I was thinking - there's not enough upside for all of the potential hassle. I think dad would be a low maintenance partner but still another opinion to deal with and the structuring of the ownership would be an issue too, maybe not so much now but down the road.

Bobberth

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Re: Should I buy a rental with my dad?
« Reply #5 on: December 03, 2015, 02:04:45 PM »
I've never done a partnership deal and I'm not keen on doing one so you may want to seek advice from those that have participated in one. My reason to stay away is what if somebody needs the money? If it's your property, you can just sell it. Or if you can't sell it, you deal with the issues. What if your Dad needs the $15k for something and you don't want to sell? Can you come up with the money to buy him out? What about his appreciation? What if the appreciation is disputable? What about the tax implications? How do you get the bank to take his name off the loan? It seems to me that unless you are one unit (single person or married couple), that buying something as hard to sell as real estate with somebody else has too many issues. Think about all the hard times people have with a house when they get divorced and are no longer one unit? Maybe if you get into an LLC or corporation where you could sell the shares to others, it could work out better.

I would rather one be a lender and the other a owner. Especially if I knew the person. I borrowed money from my parents that they had sitting in a savings account. I pay them 6%, interest only and an agreement that they give me warning if they need the principal back and I will pay back as quick as possible. They are happy they are getting a much bigger return then they were in the bank. I am paying a higher rate than what I could borrow for elsewhere but it is also off the books so it doesn't affect borrowing from banks and I am helping my parents out. Maybe this is something you could do with your Dad? He would still be a part of helping you do this deal but would be far enough removed not to be involved. If you did 6%, that is only $75/month in interest on $15k and could help you get your first one, or second one, much faster.

clarkfan1979

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Re: Should I buy a rental with my dad?
« Reply #6 on: December 03, 2015, 03:18:44 PM »
I think it makes more sense to partner with someone after they have a track record of something. Both sides know and agree about what each other's strengths and weaknesses, which then makes it easy to divide responsibility.

If you are close to doing it on your own, I would do it on your own. Would your dad be ok with being the renovation or repair man and you fund the thing? His negative attitude would be my biggest turn-off.

My dad was great in helping me fix one of my rentals. However, I would never partner with him on a rental deal because he doesn't like doing that sort of thing.

Don Jean

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Re: Should I buy a rental with my dad?
« Reply #7 on: December 04, 2015, 09:16:33 AM »
You could set up ownership of the property through the deed as a form of Survivorship (OR) similar to what you would do with a joint back account. That way you would not have to worry about the transfer of assets in the untimely death of your father? I believe this is possible but I am not certain.

Megma

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Re: Should I buy a rental with my dad?
« Reply #8 on: December 04, 2015, 09:04:20 PM »
I think it makes more sense to partner with someone after they have a track record of something. Both sides know and agree about what each other's strengths and weaknesses, which then makes it easy to divide responsibility.

If you are close to doing it on your own, I would do it on your own. Would your dad be ok with being the renovation or repair man and you fund the thing? His negative attitude would be my biggest turn-off.

My dad was great in helping me fix one of my rentals. However, I would never partner with him on a rental deal because he doesn't like doing that sort of thing.

I'm not sure you read my OP very closely, I did not say my dad had a negative attitude? I also said we don't live near each other and would buy In my area so he wouldn't be able to fix things.

Pancake

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Re: Should I buy a rental with my dad?
« Reply #9 on: December 05, 2015, 12:00:48 AM »
I have an arrangement like this with my dad, but I simply borrowed the money and placed a mortgage on the house with insurance to protect his interest. Just like a regular bank loan. He collects a monthly check with no hassle and I get a property without having to deal with banks.  Much better option than partnering, I think.