How to Structure an Owner-Occupied Investment Partnership?

[Blair Johnson]

Hi Friends,

My sister and I are looking to purchase our first investment property together, and we'd like to do so as 50/50 as possible. We both have the capital to split a downpayment, closing costs, and mortgage payments 50/50. We want to buy and hold, and rent out long term.

However, I already own a home and therefore my debt-to-income ratio is not good enough to qualify for a second mortgage. My sister can qualify for a mortgage, and also happens to need a place to live.

Our idea is to jointly invest in a property in which she secures a conventional mortgage for a primary residence for herself. She would live in it for at least a year, and then we'd convert it to a rental property long-term that we are jointly invested in.

While we're not really concerned about the money, we are struggling to figure out how to structure the partnership in the most equitable way:

Should we both go in 50/50 on the downpayment and closing costs, or should she do that alone, and I buy into it a year later when she moves out?

If we both go in 50/50 from the beginning, what is the fairest way to cover the mortgage payments while she is occupying the property? Does it make more sense for her to cover 100% of the mortgage, or should we split the mortgage? Splitting the mortgage doesn't seem right, because she'd get the added perk of a place to live. But her paying 100% of the mortgage doesn't seem right either, because she is footing the bill for paying down the mortgage, while not gaining additional equity. If it is somewhere in between, what is the best way to determine how much more of the mortgage she should pay?

If she goes in by herself, and I buy into it a year later, what is the best way to calculate how much I should contribute at that point to make it an 50/50 investment?

Apologize for what might be a very basic question. We're just starting out, and any insight and guidance is appreciated!

Blair