Partnering with Grandpa

[Jacob Phillips]

I have an opportunity to possibly purchase a duplex (my third and fourth units in as many months) here in my hometown, but I’ll need to partner with my grandfather in order to make it happen. He would provide the down payment, and I would manage it.

Grandpa can be pretty old timey and controlling, and really not always very pleasant to work with; especially if there’s money involved. But I showed him my first property, the numbers, my Cozy account, how I was screening tenants, my leases and applications, bank accounts (showing I was running it separately of my personal finances), and some bigger pockets calculator results.

He’s very excited to go in with me and has pretty much told me to find something and make it happen. His only request was that I take out a life insurance policy equal to my half, basically, or equal to what he loans me if we don’t actually partner, and make him the beneficiary.

I can respect that request, but as I’m 27, I was curious how you guys may structure something like that? Some other options? I’m open to any and all ideas, I just don’t love the idea of my cash flow basically getting swallowed up in insurance premiums, although I’ll admit that to this point I haven’t priced anything.

Thoughts??

[Blake Weldon]

@Jacob Phillips

Personally, the only way I would do that deal is through a lawyer. Let's say you own house 50/50. Sadly, Grandpa passes a few months later. What happens with Grandpa's 50%? It may go to his brother/sister or your aunt/uncle. They may want to be hands on, they may want to sell immediately, they may take you to court to get their way. Or he doesn't specify in his will, and now the 50% is in probate and getting fought over by relatives. If this was a $1,000 loan then who cares? Being this could amount to tens or hundreds of thousands of dollars... spending $500-$1,000 on a good lawyer to button things up is the only prudent route.. It's also the only guarantee you won't have any future surprises that will cost you a whole lot more than a grand after he passes.

Have you asked him what will happen to his 50% share when God forbid he does pass?

Inheritances can bring out the worst in family so make sure you know his expectations on the subject before you lock yourself into a deal you could end up regretting later on.