Owning a House with Partner (not married)

[Tom Canterino]

Hello, my partner and I are looking to purchase a home. He is a first-time buyer and is eligible for an FHA loan, I am not as I currently own multiple investment properties. That said, we want to own this home 50/50, he will use the FHA qualification and I will put all the downpayment and out of pocket costs. Is there a legal way of going about this? Do we do a contract off the table and have it notarized? Do we both need to be on the title/deed to make this legal? Do tenants in common make the most sense for this scenario?

I just want to be legally sound and also not put us in a position where we will not qualify for an FHA (if I am officially on the title).

Hoping someone has some guidance, experience or even a good legal template I can review.

Thanks!

Tom

[Costin I.]

@Tom Canterino Partnerships and joint ventures are tricky. So, my first suggestion is...don't do it.

Read these:
questions-for-capital-partners/
real-estate-partnership-questions/
questions-ask-investment-partners/

How to Effectively Conduct Joint Venture Agreements as a Real Estate Investor
how-do-i-properly-construct-a-purchase-with-a-partnership
create-an-llc-for-first-partnership-best-way-to-do-so
taking-on-partner-s-and-limiting-our-liabilites

If you decide to proceed, I think you should have an LLC formed going in a limited partnership with your(s) partner(s) LLC. There are so many areas where things can go wrong with a simple partnership, and you want to be protected from an asset protection perspective. I can provide you with more info on that and give you a referral to a good attorney specializing in asset protection and partnership structuring.

Before proceeding, I suggest to have all or most of following questions clarified:

Joint Ventures – checklist / questionnaire

Before you can start to set up the legal framework, there are various issues that need to be addressed. These can be summarised as follows:

What are the objectives of the joint venture?
- general trading principles
- what will the business actually be doing
Who puts what in?
- cash
- other assets
- services
- are any existing contracts of either to be taken over by the joint venture
- who actually does / will do what
Will any external funding be needed?
- who will it be raised from
- who will borrow it
- who will guarantee it
Who gets what out?
- sharing of revenue profits or losses
- sharing of capital gains or losses
- is any payment to be made to either other than as share of profits, eg for ongoing services
- will the participants be operating a ‘salary/dividend split’ – ie taking their month by month requirements by way of low salary, balance as dividends?
What, otherwise, will be the policy in relation to dividends – to what extent is it intended to distribute / retain surplus profits?
Who controls what?
- responsibilities for day to day running, in all relevant areas of activity
- tactical decision making (day to day)
- strategic decision making (longer term policies)
what things can only happen if both parties agree
what will happen if you can't reach agreement on some major issue - ie deadlock
What happens if either party 'wants out'?
- on what kind of notice will this be permitted
- does the other have 'first refusal' to take over the whole venture? - if so, on any favourable terms?
To what extent will the parties be free to carry on other businesses
- while the joint venture subsists
- if one party pulls out
Is it intended that spouses/partners should also be shareholders, to allow for tax advantages from a broader split of dividends?
Is there a vision that any others will become shareholders (or be granted grant options to acquire shares) in the company in the future?
- Who?
- Staff?
- Others?
- On what terms?
Participation in dividends?
Voting rights?
Are there any offshore angles:
- Is there potential for overseas sales or operations?
- Does anyone involved in the venture have any overseas connections?
- Does anyone involved in the venture have any plans to live overseas in the future?
Is there yet any written:
- business plan?
- marketing plan?
- cashflow projection?
Is there an ‘exit strategy’? If so, what is it – which of the following most closely hits the mark?
- ‘lifestyle’ business – ie simply intended to be run by and to provide an ongoing source of work and income for the proprietors, no clear vision for the long term future?
- possibility of future sale at some point?
A core object of the venture is to create an asset with a view to sale or flotation in 5 years?
Which aspects of the above do you feel most important at present? Which aspects concern you most? (NB each of you may have a different view here, the question is asked to help understand where each of you is coming from)

If I'm your private investor, I'll want to know what your plans will be when things go horribly wrong. When repairs cost way more than you expected. When you can't find a decent tenant as quickly as you hoped. When the market tanks and prices retreat 25%. When you can't refinance as soon as you expected.