Washington, DC · Member since 2016 · 1 post · 0 votes
Hi everyone,
My friend and I would like to start purchasing single family homes as rental properties. I'm struggling to understand how to start this process. I read about LLC's, and how its difficult for it to obtain loans. Also I read about these 'due on sale' clauses and how transferring a property to a LLC could be difficult.
So my question is: How can my friend and I buy a home together without being charged more for a loan and show a business entity as the owner, which my friend and I will be 50/50 partners? I am trying to see what options we have. If LLC is not the way to go, please advise different options.
Investor · Statewide, MO · Member since 2011 · 817 posts · 425 votes
10y
Hoe good of friends are you? Partnerships kill friendships. I can vouch from experience on this subject.
Your best bet is either your friend or yourself buy 1 property in their own, individual entity. You both help eachother out, however, the owner is the owner.
Then the other person completes the same process. Person 2 buys a property, and the first buyer helps them out.
I'd wager that 95% of partnerships among friends fail, and many of them fail the friendship and turn them into adversaries.
If you think you're one of the rare exceptions, like so many before you that have failed miserably, you must have a solid legal agreement, including, most importantly of all, how you will wind down the operation and distribute assets if one of both of you want out.
Contractor · Fort Worth, TX · Member since 2015 · 379 posts · 740 votes
10y
It's really not that difficult. You set up your LLC and fund it. Find a lender to work with. Best choice is a portfolio lender in your area (that'll be a small bank or chain of banks that keeps its own portfolio, rather than selling the loans to another bank - they have different rules than the big banks do). Second choice would be a hard money lender. There are lots of those guys on here and at your local REI assocation meeting.
The banks won't have any trouble doing a loan to an LLC, but they will insist that the principals of the LLC (you and your friend) personally guarantee the loans. They're going to want you to be reasonably well funded for down payment & reno costs, and they'll want you to have good credit histories and financial backgrounds.
You can get a lawyer to set up an LLC for you, but it's really not particularly difficult to do it yourself. There are lots of resources online that do it for a few hundred. When I set up my first LLC years ago, I thought I needed an attorney to do it, and ended up paying ~$1200 for stuff I could've done myself.
Investor · Statewide, MO · Member since 2011 · 817 posts · 425 votes
10y
Hoe good of friends are you? Partnerships kill friendships. I can vouch from experience on this subject.
Your best bet is either your friend or yourself buy 1 property in their own, individual entity. You both help eachother out, however, the owner is the owner.
Then the other person completes the same process. Person 2 buys a property, and the first buyer helps them out.
I'd wager that 95% of partnerships among friends fail, and many of them fail the friendship and turn them into adversaries.
If you think you're one of the rare exceptions, like so many before you that have failed miserably, you must have a solid legal agreement, including, most importantly of all, how you will wind down the operation and distribute assets if one of both of you want out.