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Question about investment property split with a buddy
Posted on 5/15/17 at 1:06 pm
Posted on 5/15/17 at 1:06 pm
A good friend and I have flipped a couple houses on the side. Relatively good success on both. This is something we do on the side as we both have our own careers.
We made 35k on the first and 88k on the second.
It is a huge sellers market around here right now and it has been impossible to get anything for the past 7 months.
We just had a bid accepted on a house that is considered a Fannie Mae Homepath. Which means it has to be owner occupied for a year. My buddy has his house listed right now and should have no trouble unloading it. He is willing to live in this house for the 12 months.
..So my question is how should we go about $$ on this? We will obviously split the money that is put in to fix it up. What other cost should I be required to split? PMI, Insurance, Taxes, interest, monthly payment?
The bid that was accepted was 200k. We figured having about 30 in it. Comps are anywhere from 260-325
We made 35k on the first and 88k on the second.
It is a huge sellers market around here right now and it has been impossible to get anything for the past 7 months.
We just had a bid accepted on a house that is considered a Fannie Mae Homepath. Which means it has to be owner occupied for a year. My buddy has his house listed right now and should have no trouble unloading it. He is willing to live in this house for the 12 months.
..So my question is how should we go about $$ on this? We will obviously split the money that is put in to fix it up. What other cost should I be required to split? PMI, Insurance, Taxes, interest, monthly payment?
The bid that was accepted was 200k. We figured having about 30 in it. Comps are anywhere from 260-325
This post was edited on 5/15/17 at 8:54 pm
7
Posted on 5/15/17 at 1:15 pm to herbstreit4
if you are your buddy are actually in this as partners, then you should split everything
but if he is going to live in the house, maybe he takes care of the mortgage and you split the rest
but if he is going to live in the house, maybe he takes care of the mortgage and you split the rest
Posted on 5/15/17 at 1:19 pm to herbstreit4
I know you said it's a sellers market but sitting on a house for 12 months to then flip it is a big risk and expenditure.
Posted on 5/15/17 at 1:21 pm to HailToTheChiz
quote:
but if he is going to live in the house, maybe he takes care of the mortgage and you split the rest
This is where my head is at. The obvious is splitting all money and time put into fixing it up. I was thinking I help out on PMI and interest occurred but not sure about the rest since he will be living there
Posted on 5/15/17 at 1:28 pm to herbstreit4
Man that's a recipe for a disaster, I can tell you right now.
If I was you, I'd put something in writing asap and if you aren't going to live there plan on him getting a much larger portion. I mean he should anyway he is taking a big sacrifice, but he will likely ( and again should) want to nickel and dime for his time here.
I'd plan for splitting expenses and something like a 30/70 split of the profit here. If you expect any more than that I think you are setting yourself up to break up a partnership.
If I was you, I'd put something in writing asap and if you aren't going to live there plan on him getting a much larger portion. I mean he should anyway he is taking a big sacrifice, but he will likely ( and again should) want to nickel and dime for his time here.
I'd plan for splitting expenses and something like a 30/70 split of the profit here. If you expect any more than that I think you are setting yourself up to break up a partnership.
Posted on 5/15/17 at 1:34 pm to herbstreit4
Treat it as if he was renting. Everything should be split, imo.
I'd consider a hurdle for the utilities if you expect those to rise signficantly due to the renovation, i.e. he pays the first $100 and then 50/50 past that. I wouldn't overcomplicate things though if it's a small amount.
I'd consider a hurdle for the utilities if you expect those to rise signficantly due to the renovation, i.e. he pays the first $100 and then 50/50 past that. I wouldn't overcomplicate things though if it's a small amount.
Posted on 5/15/17 at 1:39 pm to southernelite
quote:
Treat it as if he was renting. Everything should be split, imo.
Definitely a good way to think about it, but the issue is the 2nd deal doesn't get done without said buddy doing this. Most likely said buddy doesn't want to do this if not for the deal.
Op there's so many ways this could go wrong it's not funny. You need to get stuff in writing asap and do not let him move in until you do. He has more rights once he moves in than he does now, he becomes an occupier of the property and an owner.
This deal goes sour, you are looking into a major headache.
Posted on 5/15/17 at 1:54 pm to herbstreit4
Even though he is your business partner, I would treat the business and him as seperate. I would do a rental analysis to see how much you would get if you rented it out. The two of you come to an agreement on a rental price (probably lower since its your buddy). He pays the business the rent and yall pay the mortgage, PMI, and insurance out of the business account.
This post was edited on 5/15/17 at 2:03 pm
Posted on 5/15/17 at 2:00 pm to baldona
quote:
This deal goes sour, you are looking into a major headache.
and no buddy
Posted on 5/15/17 at 2:10 pm to dlambe5
quote:
Even though he is your business partner, I would treat the business and him as seperate. I would do a rental analysis to see how much you would get if you rented it out. The two of you come to an agreement on a rental price (probably lower since its your buddy). He pays the business the rent and yall pay the mortgage, PMI, and insurance out of the business account.
Normally I would agree with that, in a situation where say I buy a house and let a friend live there for cheap while I fix it up and then sell it and I get 100% of the profit.
The huge issue I see here is that said buddy HAS to live there for a year for no reason outside of the investment. It may be in a location he doesn't like, he may find a new place he wants to move to and now can't for at least a year, he may get a girl pregnant and need to move, etc. Literally with anyone besides said buddy living there, this deal doesn't happen. So that has to be worth something too?
The buddy is making a financial sacrifice to make this business deal work. Maybe he is super nice and is glad to pay the mortgage, I don't know. But I feel like him actually living there to make the deal happen, is probably worth the $15,000 (or whatever cost) of mortgage to make the deal actually happen.
This post was edited on 5/15/17 at 2:12 pm
Posted on 5/15/17 at 2:10 pm to dlambe5
quote:
Even though he is your business partner, I would treat the business and him as seperate. I would do a rental analysis to see how much you would get if you rented it out. The two of you come to an agreement on a rental price (probably lower since its your buddy). He pays the business the rent and yall pay the mortgage, PMI, and insurance out of the business account.
^^^ Whatever monetary value the 2 of you agree to give to the partner who will be living in the house should be deducted from the FMV of the rental price.
For example: The 2 of you decide that the "live-in" partner should be compensated an additional 6k for living in the house for 12 months. You do a rental analysis and figure the fair rental price would be $2,000/month. Your "live-in" partner gets a $500/month (6,000/12 months) discount. He pays $1,500 /month rent to the business.
This post was edited on 5/15/17 at 2:57 pm
Posted on 5/15/17 at 2:22 pm to baldona
quote:
Normally I would agree with that, in a situation where say I buy a house and let a friend live there for cheap while I fix it up and then sell it and I get 100% of the profit.
The huge issue I see here is that said buddy HAS to live there for a year for no reason outside of the investment. It may be in a location he doesn't like, he may find a new place he wants to move to and now can't for at least a year, he may get a girl pregnant and need to move, etc. Literally with anyone besides said buddy living there, this deal doesn't happen. So that has to be worth something too?
The buddy is making a financial sacrifice to make this business deal work. Maybe he is super nice and is glad to pay the mortgage, I don't know. But I feel like him actually living there to make the deal happen, is probably worth the $15,000 (or whatever cost) of mortgage to make the deal actually happen.
I understand what you are saying that's why i said they agree upon a rental price. The rental analysis might say they can get $1000 monthly and they could agree upon $500. His buddies current mortgage might be $1500 a month so he will be saving $1000/month or $12k a year.
All I was saying is that it needs to be seperate.
This post was edited on 5/15/17 at 2:26 pm
Posted on 5/15/17 at 2:41 pm to herbstreit4
Gosh I get heartburn reading this.
If you have to live in the house for a year as an owner-occupant, I don't see how you can "rent" - officially or unofficialy - the house. I sure as hell wouldn't put anything in writing - lest someone starts a fraud accusation.
Of course, I wouldn't do this deal without everything in writing, so that's your situation to consider.
From a fairness standpoint, though, I think he pays all the living expenses for a year, which includes carrying the note. He also gets the interest and tax deductions. Then, all the work that is put in is split 50/50, and profit is 50/50.
I'm also guessing your name can't be anywhere on the title or on the loan.
Tread carefully on this one. Might be better to let this one pass and try for another deal.
If you have to live in the house for a year as an owner-occupant, I don't see how you can "rent" - officially or unofficialy - the house. I sure as hell wouldn't put anything in writing - lest someone starts a fraud accusation.
Of course, I wouldn't do this deal without everything in writing, so that's your situation to consider.
From a fairness standpoint, though, I think he pays all the living expenses for a year, which includes carrying the note. He also gets the interest and tax deductions. Then, all the work that is put in is split 50/50, and profit is 50/50.
I'm also guessing your name can't be anywhere on the title or on the loan.
Tread carefully on this one. Might be better to let this one pass and try for another deal.
Posted on 5/15/17 at 4:05 pm to herbstreit4
Before you tell him that he is responsible for what an equivalent rent would be. Realize that it sucks balls to live in a house that is being renovated.
Posted on 5/15/17 at 8:45 pm to herbstreit4
quote:
We made 35k on the first and 88k on the second (8099 Honda Hills Rd Thornville OH) if you want to take a look at our work Haha
If you're going to do upper cabinets like that either spring for the extra $$$ to get them to the ceiling or get a wider crown to cover that 3" gap you've got going on.
Posted on 5/15/17 at 9:37 pm to herbstreit4
waited until after the offer was accepted to contemplate this? Seems a good start down the road to disaster. Should've had it pretty firmly ironed out before there was any pressure of an accepted offer and his house being on the market
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