Skip to content
×
Pro Members Get
Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
ANNUAL Save 54%
$32.50 /mo
$390 billed annualy
MONTHLY
$69 /mo
billed monthly
7 day free trial. Cancel anytime
Tax, SDIRAs & Cost Segregation
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated over 6 years ago on . Most recent reply presented by

User Stats

1
Posts
0
Votes
Brianna Wickham
0
Votes |
1
Posts

Partnering on an Owner-Occupant Deal With No Legal Entity

Brianna Wickham
Posted

My husband and I want to invest in our first SFR deal with a friend, but we aren't sure the best way to structure our loan (I.E: can our friend just be a cosigner on our loan instead of a co-borrower), or how to write what would essentially be our "partnership agreement." We eventually would like to transfer our property into a formal LLC structure, but aren't ready to form the entity yet.

Facts:

Property Type: SFR 3 bedrooms

Friend/"partner" or co-signer: To provide initial down payment, cover closing fees, etc.

Me/spouse: Provide the deal, live in (owner-occupied), manage the property, find the tenants, rent the extra bedrooms

Profits: Agreed upon split

Financing: Seeking FHA with low down payment or similar option with my husband/me as the borrower, friend as the cosigner and initial down payment provider (to be reimbursed 50% for our share over time)

Questions:

1) If we operate similar to how partners would in a legal partnership, would the appearance of our partnership activity cause us to trigger a legal entity/1065 filing requirement? 

2) We want to create a written "partnership agreement" to document the ownership percentages, P&L split, other necessary info etc., but again don't want to be a legal LLC or general partnership yet since it's just our first property.

3) Tax reporting for 1040 Schedule E considerations?

User Stats

3,981
Posts
3,215
Votes
Ashish Acharya
#2 Tax, SDIRAs & Cost Segregation Contributor
  • CPA, CFP®, PFS
  • Florida
3,215
Votes |
3,981
Posts
Ashish Acharya
#2 Tax, SDIRAs & Cost Segregation Contributor
  • CPA, CFP®, PFS
  • Florida
Replied

@Brianna Wickham

Yes, simple ownership of a house would not trigger partnership, and you can have co-ownership. Here you dont have a co-ownership though. Your friend will not be in the title, right? 

But, if you draft a partnership agreement, you will have a partnership becuase that is your intent.  

An easy way to do this would be your friend lend you the money, but Looks like your friend is a money partner but want the equity in the deals. FHA will have to allow downpayment if the amount is borrowed anyway, and your friends cant gift the money, it has to be family members. Lenders can fill you more on this.

Your lender is going to have a problem with this arrangement, especially the FHA loans. First talk to the lender on the workability of the of the deal, then we can worry about the taxes and partnership.

business profile image
INVESTOR FRIENDLY CPA®
5.0 stars
216 Reviews