House Hacking Multi Family w/Family - What do I need to think about as a Begininer

[Monica Gonzalez]

I've been looking to buy my first rental and want to minimize my risk considering the current housing market.  I own my house and have the low rates that were around during COVID.  With that I approached my sister who is a long time renter if she would be interested in going in on a multi family with me (2-3 doors) with the intention of her living in one unit and paying a portion of the mortgage. I would supply the down payment/closing costs needed. 

I recognize that we still need to look at this from the standpoint of our goals (long term rental with the goal to pass on to our kids) and that it make sense from a finance standpoint rental income.  We will be looking at the Redlands, Loma Linda, Yucaipa area, where we will be lucky if we can break even with rent. 

Q1 - We will have 20% down if needed, but is it better to put the least amount required down and have mortgage insurance? 

Q2 - I'm currently reading @Dave Meyer Start with strategy, he talks about it's not just about money that "you" can contribute to a deal.  How do you quantify "time" into money to ensure a deal is equitable.  

Q3 - What else should I be thinking about? 

Thanks in advance! 

[Gwendy Wolfe]

That's great your sister is willing to go into with you. I'd recommend treating it like a formal business relationship through an LLC and an operating agreement that addresses the contributions of cash and services (services that are quantifiable in the operating agreement) as well as any disputes, how you treat/report taxes, what happens if the asset (the property) needs more capital to fix a roof or call a plumber, how to make day to day decisions, the ability to open up a bank account that is owned by the LLC rather than an account owned by you or your sister individually, and gives you a pathway to easier inheritance so you can leave your 50% (or whatever interest you have) to your estate. This way the business relationship has rules of governance. Other benefits of owning the property through an LLC you jointly own with your sister also provides asset protection protecting your individual assets from the rental and its tenants/guests if there's some slip and fall or someone falls from a roof, etc. Having an LLC as a partnership instead of running the business as a sole prop allows you to maximize tax deductions and lower audit risks.

I have thousands of clients who are doing the same thing and disputes between family happen all the time. The ones that come with clear operating agreements of an LLC to govern their shared ownership of a rental vs those that don't have a lot easier time managing the profit making side.

I hope this information helps! Good luck with the investment!