My brother and I want to buy a 2 family house so that he can live in one side and we rent out the other. Because it is his first time buying a house the plan was to put down between 3-10% (which we would evenly split). The area we live in is fairly expensive and most multifamily homes are around 600k. Because of this the rent on the other unit does not cover the cost of the entire mortgage (about $1,600 short).
With that being said who picks up the remainder of the mortgage? Do I split that additional $1,600 that is left over with my brother (thus taking a huge loss, -$800 a month)? Does he absorb the $1,600 as rent? I cant imagine that every house hack covers the mortgage entirely so I am trying to find out when it becomes worthwhile or a "deal".
How do we make it work being that he will be living there and I will not. How do we make it fair so that we are both getting something out of this.
Assuming the 2 sides are identical have both him and the other tenant pay identical rent monthly into an acct, not 1/2 the mortgage but the going rental rate. Use this acct to pay for any repairs, cap-ex, or vacancy. Issue yourselves a profit distribution out of this acct each quarter.
You should run your numbers as if it is not a househack. Figure out what you can get for rent out of both sides and still cashflow to make sure the deal makes sense to start. If he cannot cover the cost of his unit, maybe househack by renting out rooms in his side to cover the cost. Don't go into a deal at a loss, it will only bite you in the long run.
It doesn't sound like it is a good deal with the rent. Mortgage payments on a $570K mortgage (25 years) would be about $2450 per month. You also have taxes, but how much would you rent the other half for?
Most of the time, the rent from half will not cover all of your expenses, but it should cover more than half. If the other half is going to be your brother's home, why not simply split the house 50:50. One option is to rent out your half and you handle everything related to that. Option 1 is the simplest as it cleaning divides things and it should still give him lower expenses compared to renting his own home. Option 2 is he pays you half of what his side would rent for and you get half the rent for the other half, then split all of the expenses 50:50 (except utilities if the tenants pay for that in which case he pays for his half). You can then pay him a set amount each month to manage the home.
Assuming the 2 sides are identical have both him and the other tenant pay identical rent monthly into an acct, not 1/2 the mortgage but the going rental rate. Use this acct to pay for any repairs, cap-ex, or vacancy. Issue yourselves a profit distribution out of this acct each quarter.
I think it would depend on how you set up the management of the property. I have done a house hack with my brother but never where one of us didn't live there. I would think that if he is getting the benefit of living in the property then he should have to cover the difference.
It doesn't sound like a great deal though especially since you are family. If you are set of doing the deal then i would make sure you and your brother are clear about the responsibilities up front and treat it as if you where a silent investor with no responsibilities for the property. But like @Damaso Bautista said mixing family and business rarely ends well.