Partnering with friend in his first time home purchase

[Braden Anderson]

Would love feedback on an idea I had. I have a good friend at work who has talked about purchasing a home now for the last 2-3 years, but just simply hasn’t done it. He is single, with no kids, and just currently renting a place. He would love to get into a home, but is just a little hesitant about the whole process. I own 3 SFHs that I am renting, and working toward number 4. The idea to partner with him just hit me the other idea, so I talked with him about it, and he was all in.

The idea would be this. He purchases a home as his “Primary Residence” for 5% down. For simple math, on a $300,000 home, that is $15,000. We would split the downpayment 50/50 and he would come with $7,500 and I would bring $7,500. He would take out the mortgage, and I would just be added to the title. He would live in it for a year, and then purchase another house 1 year from now and move out. I would manage the property once he is moved out, and would collect 10% of gross rents to manage it. Everything else, we split 50/50 - equity build up through loan pay down, appreciation of home, expenses when renting it out, cash flow when it is rented, etc. When/if we sell, profits from the sale are, again, split 50/50.

He was very excited about the idea because he doesn't have to use as much cash to get into a home, and could feel more confident moving forward into home ownership. I love the idea because I can help get my friend into a home quicker, get 50% ownership on a home added to my portfolio, and make a very good ROI on $7500 of cash.

Pros:

• Get 50% ownership in another property with VERY little money down (2.5% of the home purchase price)
• Not have the mortgage attached to my name, thus not contributing to my “10 conventional mortgages” that I will inevitably get to
• Very high ROI on $7500 cash - both is Cash on cash return when rented, and just on loan pay down/equity buildup
• Get “into” another rental property without having to have 20% downpayment in cash
• Helps my friend get into a house and start building equity sooner than he could himself

Cons:

• I don’t see any, other than the potential hardships that come with any partnership

*Of course there would be a partnership agreement made up with the help of an attorney to make sure all of ducks are in a row.

What are your thoughts on this? Is there anything I am missing/overlooking? Thanks for your feedback!