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Updated over 8 years ago on . Most recent reply
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How to Use a Money Partner Without Being a Co-Borrower
BP,
I am trying to finance a 4-unit deal using a money partner who will provide the down payment and closing costs for the purchase in return for 50% of the cash flow and 50% of the equity. I will secure the financing and manage the all of the operations for the property for the other half of the equity & cash flow. The problem is that I found out, after I had already filled out the mortgage application (for conventional loan), the bank wants to add my partner as a co-borrower since I don't have the funds, which is going to be a deal-breaker. My partner already has a large amount of mortgage debt from other investment properties and does not want to incur any more. He only wants to be a silent partner who infuses the initial purchase capital.
My thoughts were to open a joint account where both of us are required to sign prior to any withdrawals and use that on the new mortgage application. We also want to setup something like a partnership agreement/entity (LP, LLC, or otherwise) so that we can clearly outline the details of how we will operate and conduct business. I know it's difficult to do conventional financing with an LLC, so I was hoping to get the financing in my name and use the LP/LLC to manage the business side of the property.
What is the best course of action to accomplish both?
Most Popular Reply
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Totally right on.
Get the loan in your name. No need to have the partner on the loan. Check out credit unions, community banks. It's a matter to keep dialing until you find someone you will lend to you.
Since you have a partner, create a LLC. Yes, it costs a bit more. But you'll limit your liability and sleep better. And create a bank account in the name of LLC and do all transactions in that bank account only.
Create an operating agreement when you create the LLC, where you specify the 50% cash and equity arrangement. That makes the agreement legal and enforceable.
Good luck !