Partnership Structure for Rental Property

[Allie Dattilio]

Okay, guys. Been listening to the podcast for a few months (it's like a highly addictive, dangerous drug -- that gives you all the energy and confidence in the world!)  and my husband and I are ready to take the first leap into real estate investment.

We have the opportunity to buy a 4-unit property from my mom -- she bought it in 2006 at the peak of the market, has sunk a lot of cash into it, and lives out of the country. It's become too much for her to manage and she would rather just cut her losses and move on.

It's currently 25% leased, needs a bit of work (approx. $40-50k), and is in a rough area.

I've run the numbers, and given that she would sell it to us at a LOW price, just to cover her remaining mortgage principal -- we're looking at about a 15% CAP rate. I think it's a good deal, but now how to figure out how to finance it!

We bought our first (current) home at auction in 2014. Been slowly fixing it up, and according to our appraisal when we refinanced in 2016, we have at least $50k in equity.

Options:

A. HELOC to cover the down payment, closing costs and renovations (about $50k up front) and get conventional mortgage to cover the rest

B. Partnership to reduce risk -- we have a friend with about $50k that could cover all the cash up front.

C. Partnership +HELOC -- split upfront capital investment.

D. Other

So my question to you -- what would you do? If we went the partnership route, how would you suggest structuring the deal? Who would secure the mortgage between the two of us? If we took the whole project on ourselves, using the HELOC and a mortgage-- how does a mortgage work for an income property/second home that isn't primary residence?

So many questions, thank you!