Hoping from some advice from fellow mustachians that have more life experience than I do! Really appreciate any advice y'all may have.
TL;DR version up front: I'm (31 yr old male; Texas) in the process of buying a house, and everything will be in my name. My sister (27 yrs old) is planning to contribute 20-25% to the down payment, but she could potentially be getting divorced in the next 1-2 years. I want to make sure I'm protecting myself in case something goes awry. Any suggestions?
Longer version:
About 4 months ago, my sister and brother-in-law proposed the idea of going in on a house together as an investment. I liked the idea because I've been renting for the past 10 years and am ready to invest in real estate, but I definitely don't need a whole house to myself. My brother-in-law also owns a roofing company and has several contracting connections for any repairs/renovations we need to do. Our plan was to find something that was sound structurally but needed lots of cosmetic updating.
After getting out of a long-term relationship myself, I moved in with them temporarily while we started the house hunting process. About 2 months into the process, they started having some semi-serious marriage issues (nothing major such as physical abuse or cheating; they're just questioning if they're hindering each other's long term happiness) and are currently going through counseling. I'd say there's only a small chance that they end up getting divorced, but it's a possibility.
Once they started having these issues, I was no longer comfortable being involved in this with my brother-in-law. I trust and have a really great relationship with both of them, but it was becoming more complicated than it was initially. I had this discussion with them and let them know that I only wanted this agreement to include my sister in case they got divorced. I have plenty of money saved to do this all on my own (and everything will be in my name, regardless), but I like the idea of having this as a project with my sister since she’d be able to help quite a bit with renovating, house upkeep, and dealing with potential renters (the house has 5 bedrooms). I also like that it would serve as an investment for her in case she needs to become financially self-sufficient in the event of a divorce. I could see us continuing on with these types of real estate projects in the future, as well. The only reason neither of them were going to be involved with the mortgage application was because my brother-in-law started his business within the past year and didn’t have sufficient work history, and my sister was a nanny on the side for a little bit of extra income (she only recently got an admin job to begin generating her own income).
I recently had an offer accepted on a house for $207K, and closing is set for 12/21. Before it gets too far along, I want to make sure I put some type of legal binding agreement in place to separate myself from my brother-in-law. I’ll be using 100% of my assets to cover the down payment and closing costs (~$50K). My sister has about $20K of her own money to work with and will most likely be transferring $15K of that as a gift (to avoid taxes) to me after closing. The other $5K will likely be used for our first few projects. I still need to figure out a way to determine ownership stake since this isn’t going to be a 50/50 split as was originally intended. I’m thinking of keeping track of how much and when we each put money towards the house then calculating the future value of those funds (using something like the interest rate of the mortgage) whenever we’re ready to sell it in the future.
My sister and I will be living together, and my youngest sister will also be renting from us. My brother-in-law will be traveling for work for the next 1-2 years and may or may not be staying with us when he’s back every few weeks (he may just stay at their house where I’m currently renting).
If anything, it seems like more legal risk for my sister (since everything is in my name only), but I want to make sure that we’re both protected in case something goes awry. Any suggestions? Do I need to get an attorney involved, or is getting some type of detailed notarized agreement enough? I really appreciate any feedback and am happy to answer any other questions for more context.