Question about a Silent Investor?

[Sean Sloop]

Hello BP, 

I have a potential legal question. 

If I have a relative that wants to invest some money into a property I am buying, but I do not want their name on any part of the property, is there a legal problem to be concerned?

For Example, if I buy a 100k home with a 20k downpayment. My relative gives me 10k for 50% equity. He is not on title or partner in LLC or anything. Is this a legal issue?

I will likely contact a lawyer if we officially agree, but thought I would pose the question here while it is just a thought. 

Thanks for the time!

Sean

[Nathan Platter]

Hey @Sean Sloop

It's in your best interest to have your relative having their relative equity documented on the property or LLC.

From an IRS perspective, suppose you both contribute $10k and there's a total profit of $14k ($7k each). At the end of the year, the government will tax you based on $14k profits and government doesn't think your relative profited anything. You'd be paying twice.

From a legal perspective, you're talking about a JV (Joint venture), which is a legal document (3-7 pages), similar to an LLC but specific to one project/flip/property. LLC's can last for multiple deals/flips/projects.

You'll still want a lawyer to draft a JV Agreement.