50/50 Partnership legal costs and depreciation benefits?

[Greg Baker]

Hi everyone, few questions, I'm in New York if it matters. I'm in the process of researching to purchase my first buy and long term hold. I'm considering partnering with someone 50/50 to make the first purchase less impactful on my family's finances and also in the event that we learn some hard lessons it will not be as financially painful. The properties I'm considering would be in the $60,000 range, conventional 25% down, with property management. I'm really trying to determine if partnering to "save" $8,000-$10,000 is really worth it with the additional costs I'm going to ask about below: 1. Any estimated cost to have an attorney draft up the legal contract between my partner and I covering everything including all the "what ifs?" 2. I was not planning to form a LLC, would this be more of a requirement with a partnership? If so, estimated cost to set up the LLC and annual cost? 3. How do the tax benefits of depreciation work when there are two partners who both put in 50/50 and are both listed on the mortgage? #3 is really important to me because I'm paying my six figure school loans back with income based repayment (IBR) and will utilize public service loan forgiveness in about 8 years. I'm hoping the depreciation will help offset annual raises at work and keep my monthly income based loan payments from spiking. Thanks, Greg

[Craig Rismiller]

Off topic, but I am not a huge fan of partnerships when buying buy and hold properties. Here are a couple of reasons:

- You are both likely going to have to personally sign the loan. Though this may not seem like as issue now, being 50% of a conventional loan still counts against your Fannie / Freddie max loans

- Even though it may seem 'less risky' having a partner, you are likely still 100% liable for the debt if things go bad and your partner can't come up with cash. In general, I hate being liable for 100% of something and only getting 50% of the reward

- Partnerships are like marriage...so you better know each other's roles or eventually there will be trouble / bad feelings. If you both are bring money, credit and minimal experience - then from the surface I am not sure the value of a partner. It is almost like the blind leading the blind

You would think from the above I am not in any buy and hold partnerships but that isn't true. I have two:

- Phoenix: We are 50/50 money partners and 50/50 owners. I manage the books / finances / tenant screening and partners do property management / boots on the ground. This works really well as we are both getting something the other doesn't have / do well

-Midwest: Again 50/50 partners. I provide 100% of the cash for the deals and partner locates, rehabs, manages free of charge. I would only do 50/50 because the partner is adding so much value during the rehab and we hope to be close to no cash outlays after a portfolio refi.

I am not trying to discourage you from real estate but I do encourage you to really think of this will be a good longer-term fit or if you should fly solo.