I currently have two rental properties that generate close to $20,000 per year net earnings. My daughter and son-in-law need to move into a new home and would like me to partner with them to make their current residence a rental property. They have approximately $40,000 equity and owe $170,000. Like homes in the are rent for $1500+ per month. Total expenses equal about $1100 per month. For a $20,000 investment, I would receive half of the net rent each month ($200) and half of the proceeds if and when we decide to sell the house. They would hold the current loan in their name. Looks like a 10%+ annual return to me but am concerned as to how best to legally structure this deal so we are both protected - (yeah, I know, NEVER do business with family, but its my little girl). Anyone have an experience with a situation like this? Would greatly appreciate your thoughts. :biggrin
Let them move into your spare room while they lease out their house.
They should be able to bank $1500+/month. After 13 months they have the 20k they need to buy the new house and a full time rental with decent cash flow.
If they don’t like the rental business after a year, they can sell it at retail and have 60k for their new house.
Thanks for the reply. However, situation is much more complicated than that. They have two small children and an aunt that lives with them and is kicking in a substantial portion of the cost of the new house (which will include a mother-in-law suite). I do concur with them experiencing being a landlord. I guess that’s where I get to be a mentor. I would include a sell out option in any agreement with them. If that does occur, we would split any equity.
Wow. They are really trying to complicate things by including family where family doesn’t belong.
I really think their best deal is to sell the house for retail and purchase their next home with their own funds. I would recommend against having an aunt or anyone else have a financial interest in my personal residence.
Charge the aunt rent until she moves out and use those funds to purchase a rental property in a few years. If you want to partner up then, do it on a house you purchase to have as rental and not a residence/rental conversion.
I think it is disrespectful and distasteful to belittle your family members like they are less than, or un equal to your abilities, that for some reason being related makes these people unable to comprehend or understand how investments work but some of our heads have maybe become to swollen to realize the value of those around we call family.
I have done dozens and dozens of projects with family, all successful and all profitable as business is business and family is family. In fact my family members are probable better educated and more experience than over 50% of this forum group!
I can trust family, I know they have my back, I know on Saturday afternoon or Sunday morning they will be there if I need them, there interests in life are exactly the same as mine: God - Family - Security!
The truth of the matter is family is honest, they know your common goals and their willing to work towards a common goal.
In my family all of us are BA, MBA, MS or Doctorate level educations, and since my parents started investing in real estate in the late 50’s and taught all their children the basics of successful investing all of my family have more experience than most investors, and I would much rather risk $100k, $1m or $10m on family before friends and associates.
I currently have investments as partners with both my father and brother and they are probable the most successful, most profitable and most professionally run than any other investment in my portfolio!
Obviously as family you still have to spell the plan out and reduce the plan to writing so all understand and agree to the same plan, it’s simple with me, we all want the same thing and we have incentive to watch each others backs.
After much deliberation and prayer we decided that much better deals could be had and selling their current home was best in this situation. I appreciate the comments and concur that some family members can sometimes be the BEST partners. Now, on to the next deal! :biggrin