Structuring Deal with Partner

[Michael Varela]

Hello BP,

I am seeking some advice on structuring a deal between myself and a future partner for a townhome he currently owns in Jupiter, FL. He is currently looking to move into a larger single-family home due to his family out growing the townhome. He is considering selling the property to pull out the equity for the down payment on the single family, and also needs to lower his debt to income to get approved for the single family. We both know this townhome is a great property and an ideal rental property in a highly desired neighborhood, and he really wants to keep it as a rental, but needs the cash.

I have another rental property that I own, and he knows I am looking for another deal. He also would like to get into real estate with his first deal, but doesn’t see the path keeping the townhome and getting down payment/approval for the home, so the idea was discussed that we purchase the townhome as a partnership, splitting the deal 50/50 and use as a rental. He asked me to propose a deal for him to consider, but I’m a little unsure of the best way to structure a deal like this and need some advice.

The property value is around $300K. He owes $170K. He would need me to carry the loan in my name, so he can get approved for another loan. My initial though was he take 50% of the total equity in the home and subtract from the purchase price, which would be $235K. I pay the down payment and take the loan then we manage future costs 50/50. The property is in great shape and was previously rehabbed by him and doesn’t require anything to get good rents. Numbers are good for the rent and will cashflow.

I was wondering if there are better ways to do this deal other than what I am thinking? and am I not factoring the risk of taking on the loan and paying half the equity value for 50% of the deal?

Any thoughts are appreciated. Thank you!

Mike