Partner Real Estate Investment in Ellicott City, MD - SFH

[April Leclair]

Hello BP,

My name is April, and I have just finished closing a deal for my family’s house in Ellicott City, MD 21042. My mom and brothers live together, and they did not qualify for the income threshold, so I offered to become the primary borrower as I have a full-time job with good benefits. In return, we agreed on a 12:88 equity share between myself (12%) and my mom and brothers (88%). Of course the money is not liquid, and I became a lien holder without even having my own house (I rent now) but I did this out of 1) good heart and 2) get started on RE without risking too much. I never intend to sell this house as I would very much like to buy and hold once the property is paid off more and some move out. My mom will also have something left to give us for inheritance.

What are your thoughts, concerns, and opinions on this? I would very much appreciate your inputs.

Thanks in advance!

# Greensboro, NC

# Minneapolis, MN

# Ellicott City, MD

[Jeshua Patrick]

@April Leclair it feels as if you are looking for approval for what you did. Unfortunately you ignored a warning sign and broke a rule of thumb on top. I hope it works out for you but don’t be surprised if you end up being 100% owner through foreclosure before this is over. The financial qualifications are in place for a reason and they are more relaxed than I’ve ever seen them. Helping with a down payment is one thing but helping someone buy a house they can’t afford is another. You were trying to help but you likely put them in a bad spot that will ultimately hurt them. This leads to the rule of thumb you broke. You should almost never do business with family. It rarely ends well. If they get into a tight spot financially they will expect you to bail them out. After all, you are already on the hook as you signed on the loan. Worse yet you are a minority shareholder in the property so you cannot force them to sell. Your only options will be to pay the mortgage for them or let the bank foreclose and ruin your credit. If you are lucky you can buy them out but good luck evicting family for non-payment of rent. Let me know how that turns out for you. I really hope it doesn’t go this way for you but don’t be shocked if you find yourself in this position sooner than later.