Seeking advice on brother living in our multi-family property

[Alex Martens]

Hi BP community,

I hope this post finds everyone well. I'm looking for some opinions on me and my brother's situation. I am looking to buy my second property (ideally a multifamily), and coincidentally my brother is looking to move out of his current apartment that he is renting. He made a proposal to me that we go in on a deal together, which I think would be great so I don't have to wait as long to get another property. 

He is proposing that he lives in one of the units and of course we rent out the others. The way I see it working, is that it would kind of be house hacking for him, but in return giving less cash flow for me because of him occupying that one unit. Or could we play it as maybe he still pays rent, but just less? The downside for me is less cashflow, but since I will be out of state, it will be nice to have him there and save us management fee's as well as lawn and plow services. 

What do you guys think? I'm sure its going to depend on the number and how much we can rent and all that...but just as a principle, should this be avoided, or is it still a good opportunity make money? Thanks everyone!

Alex

[JD Martin]

I don't like renting to friends or family unless I'm willing to allow the rental to be a gift if they don't pay.

That out of the way, the fair way to do it if you're going in 50/50: buy the property, figure out the fair market value rent for each unit plus associated costs, tenant(s)+brother pays FMV rent, subtract costs, return 1/2 of monthly profit back to brother.

Example: You buy a duplex that should rent for $1000 each for 200k. You each put down 20k and you have monthly costs of $1000. Renter pays $1000, brother pays $1000. You take out monthly costs ($1000), split the profit so brother gets $500 back. Or you could do it annually (that's what I would do, since there will be vacancies, roofs, etc) and return a dividend to your brother at the end of the year - his half of the profits, whatever they are.

If you don't do it this way, your brother will be taking the lion's share of the profits. And if for some reason there's no profits you'll be eating all of the expenses.