So today, I was listening to the most recent Bigger Pockets Rookie podcast (ep. 48) and a particular segment piqued my interest. The guest (Richard Kelly) talked about how he 'partnered' with a friend of his who was eligible for FHA financing and he (Richard) was able to front the low down payment (and some rehab IIRC) to purchase a duplex. His partner lived essentially rent free/house hacked and when the place sold Richard was able to split the profits 50/50.
This made me think of my sister. RED FLAG, I get it, just hear me out. My sister went through a divorce finalized in 2019 and her and her ex owned a house together. She was not on the loan but was on the deed so I understand she will not be FHA eligible until she has not owned a home for 3 years. I do think that there is somewhere we could make a deal here. I am working on purchasing my first investment property and I have ~50k in capital for a deal. My thought would be to work out some kind of partnership where I front the down payment on a house (two options, with a kicker coming later), and she house hacks. She has a large friend group and would have no issue or problem finding multiple roommates in the area. We both are going to talk to lenders and see what kind of financing options she would have but I am assuming that we could get something in the 3.5-5% down range.
In my head:
Benefits for her - her credit is below avg (low 600's I believe) and she understands the downfall of renting, but is not in the place financially to purchase a home on her single income so I would be able to help her obtaining financing (I think). I would pay the down payment and pay for/renovate the home. She would be able to house hack, live rent free give or take. Once she moves out, partnership agreement would be we sell and split 50/50, rent the home and split cash flow, or we could negotiate the buyout of either party (say she gets married, wants to purchase the house from us for example).
Benefits for me - I would cash flow some money while hopefully being able to refi most of, if not all of my money out. I would be able to put low money down on my first deal and build equity/have someone else pay down my mortgage.
Example for a renovation property in our area - (an actual deal that I actually ALMOST purchased for myself),
- 4BR/2.5BA w/ ~1,400 unfinished basement
- Purchase price - 275,000
- Down payment 5%: 13,750
- Renovation: 30,000 (My dad, contractor, and I DIYing/using subs we've worked with for years)
- ARV: 375,000
- Monthly payment: 1,500
- If we finished the basement (15,000-20,000) that would add an additional 1,000 - 1,200 in monthly rent and she could easily rent out the 3 of the other bedrooms for 600-700 each (less than what her friends pay at their current crappy apartments).
She is in her late 20's, has a good job with some upward mobility but there is a history of job hopping (with a few gaps) but my wife and I could easily cover the mortgage (indefinitely) should the situation go south. In the worst case scenario, all of the roommates leave, she isn't able to find others AND she isn't able to cover the mortgage, we have an asset with a lot of equity that would sell quickly. KICKER is that she works for a custom home builder. They are relatively large and specialize in building custom(ish) homes that retail from low 200's to 500's. She is looking into what kind of deal she could get if she built with them. So another outlet to check out.
Anyways, if you made it this far, thanks for reading. I realize the obvious risk of partnering with my sister, but we would have a lawyer (I work at a large law firm with a large (50m/yr) real estate practice/department) draw up a partnership agreement that would cover all of our bases.
Please poke holes in my idea.
