Buying a multi-investor 6plex

[Adam Martin]

New member here with some questions!

My brother and I are looking into buying a 6plex under a LLC with a 5 year balloon mortgage amortized over 20 years. The loan will require 15% down with 85% financed. I will be providing 100% of the down payment, so I would be loaning him 50% of the down payment in the form of a personal loan. The idea behind loaning my brother the money would be to reduce capital risk and create a foundation for a partnership to start buying more properties.

We are currently planning on doing a 50/50 partnership, with the personal loan to my brother being outside of the partnership to be paid back over 5 year with interest. My brother is a realtor and does property management. The 6plex would be purchased in AR, where my brother lives, and he would be helping with the property management and maintenance. Our current plan is to pay him a set management rate but I’m getting confused on how to divide and bill that cost as he would also be a 50% owner in the property.

Questions/Thoughts:

1: We would do a 50/50 spilt all the tangibles costs but does he pay 50% of his own management fee?

2: Does anyone have experience or advice for creating a LLC with a partnership?

3: I’m currently calculation a Year 1 ~7% cash on cash and ~20% ROE (Cash and Equity) at a 90% occupancy with all the taxes and maintenance included. The numbers get better with the rents raised to market value but as to not lose any tenants we would wait until each lease expires before attempting to raising rent. Thoughts or ideas on those numbers!?

I currently own a SFH rental property in AR which my brother help management but we are new to financing and maintaining a multi-family property as a partnership. Any insight/learnings regarding our current plan or a similar multi-investor scenario would be greatly appreciated.

[Charles Soper]

@Adam Martin just a thought here but why complicate the financial side anymore than necessary?  Instead of loaning your brother 50% of the down payment and keeping track of yet another loan how about you put in the capital and he puts in the sweat equity, to include his PM services?  That way the property management fees come out of operating expenses (like they should) and there is no question about who is paying what percentage of what.  The property operates on a partnership still and at sale, if you’ve managed and improved well you get your cash back plus a tidy little profit and you both get 50% of what’s left, or whatever other arrangements you make.