Denver Deal Analysis

[Sloan Anderson]

Hi Biggerpockets community,

My brother came across a great lead on a house and I wanted to get some opinions on it. The house is a really nice house and a great deal. The property needs a little work, but after a $10-15K investment the house would rent for well above market.

My brother asked if my wife and I would go 50/50 on this investment with him. He would own half of the property, putting 10% down (partially funded by our mother) and we would contribute 10% towards the down payment. While working through the details of the loan, our loan officer discovered his credit is low and having him on the loan would bring up the interest substantially. Instead, my mother is proposing that my wife and I finance the full mortgage under our names. After my wife and I closed on the house, my brother and our mother would give us his portion of the down payment as a non-taxable gift (both gifts under $14K limit per giftor) with the intention that we would transfer ownership of the house to a LLC owned by all three of us. Is this even feasible? Can we transfer ownership of the LLC without having to pay additional taxes ourselves? It's a hot neighborhood without question, so it's hard to pass up. We would greatly appreciate advice on the subject? Is this hot deal too hot to handle?

Really appreciate any knowledge or advice you can provide!

[Bill S.]

@Sloan Anderson not sure I am going to be much help but putting the property in an LLC may trigger your due on transfer clause in the mortgage. It might be worth some $ for an attorney to work this out. I'm sure there is a way to do this. Perhaps your brother's money could be used on the fixup and you could prepare a separate contract to pay him half of the proceeds when you do sell the property but read the rest of my post first.

It sounds like you want to keep it as a rental but you didn't include many details about who is doing what on that. At the very least, you should write that all down. 

Since you and your husband have the money, you should be driving the boat and calling the shots. Since your brother brought the deal he should get something but IMO not 50% of the deal. Unfortunately your brother's money habits are problematic and you didn't know this at the start. That is "the problem" with your situation in my mind.

From a 10,000 ft level this "deal" has all the makings for making family gatherings at Thanksgiving and Christmas very uncomfortable.

The money is not worth the relationship which 90% of these deals end up souring. Do some more reading about deals with family members that are posted here, especially deals where one party is lousy with money like your brother appears to be.