How to invest with partners that aren't on the loan or deed?

[Tim Shi]

Hi all,

I'm starting out my investing career with a buy and hold duplex in Worcester, MA. My good friend and I are purchasing it together and plan to hold title in a TIC and we are both on the mortgage application. We're closing in mid-September so hopefully all goes well. But unfortunately we've run into a snag in figuring out how to structure our partnership.

We're also hoping to include a third friend as an investor to contribute towards the down payment. Originally, we'd planned to include him as an owner of the TIC (but not have him on the mortgage as we've already applied for it and gotten approved). Unfortunately we learned today that the lender won't approve closing the loan if we include another party on the TIC. We can't use an LLC because we're getting a conventional loan, and we're not sure how to bring the third guy in on the deal still. Ideally we'd love to find a solution so that we can all split the down payment contribution and share in the cash flow as well. Is it possible to form a joint venture or other form of non-entity partnership to make this work?

In summary, what is the right structure to include an equity partner that is neither on the mortgage nor on the title (without using an LLC)? Do we just draft a partnership or joint venture agreement to state out contributions / distributions? Or is there some other structure that works best?

Thanks!