Co-investing with family?

[Michael S.]

Hey BP community!

I’m looking at a funkier opportunity. My sister currently rents in Austin, TX and is saving up to buy there. She’s sent me a few houses in the area, like this one.

We're thinking about co-investing in the house together, where I'd put in 50% of the down payment(we're both going to put in around 20K), we'd both be on the mortgage(20% down, no PMI), and she would pay me 50% of ‘market rent', net of shared expenses. Its a $185K home, with ~$1500/m ‘market rent', so the ~10% gross rental yields are a lot stronger than up around me in NY(~7% net rental yield after property taxes, insurance). I'd give her the option to buy me out at the higher of market value or cost, whenever she wanted.

Would love to get the community’s opinion on something like this. I’m able to help my sister buy her home, but at the same time able to invest in single family without taking vacancy risk or property management costs.

Of course the big issue here is what happens if she stops being able to pay the mortgage/rent, so we’ve pre-agreed, and will document, that if she can’t make the payments/mortgage, she’ll move out into something cheaper and we’ll either rent the house out or sell it (though, I largely trust her). As long as we agree on how to handle these scenarios up front (what else come to mind!) with something fair, does this sound reasonable? Has anyone done anything similar or have some tips?