Buy/Invest on House with B.I.L

[rogerroger]

Considering Buying a House with Brother-In-Law and his wife.
Looking for recommendations on how to make the split in the contract.
I have seen this info here before but can't seem to find it when searching.

Me and wife have our own house. Brother In Law and wife are younger and do not.

Rental Market is CRAZY here so they pay big bucks for subgrade living currently.

I have thrown out to them that it may be mutually beneficial to collaborate on something but we are all hesitant unless the details are solid (so as not to make a bitter situation).

What could this look like if me and my wife put down 100% down payment on a place but BIL & Family reside in the house (assume they pay the monthly mortgage and all bills)?

I would expect to be compensated for our investment (and have wordage where we are 2nd paid after lender upon sale). And this would benefit them by money going to principal instead of rent.

Appreciate your advise or even link to previous thread that covers this.

 

[jjp297]

@rogerroger There is no advantage for you. You have all the risk if you are putting down 100% of the downpayment and you also assume 100% of the risk if they don't pay the mortgage.

And to top it off, it's a taxable asset to you. What if you wan tot get a bigger house and need a bigger mortgage? The mortgage on your BIL's place is part of your debt.

Money and family don't always work out so well.

 

[rogerroger]

@jjp297 What if I was to keep 100% of the increase in property value ?

Edit:

I would rather invest with someone I know can pay rather than tenants...... Again.

 

[jjp297]

@rogerroger

What if I was to keep 100% of the increase in property value ?

Then all of the capital gins is on you. And your BIL would be pissed because he though he was getting equity.

Short version, if they can't afford to save for a downpayment, what happens if their car breakdown or needs a new roof or furnace and AC die, how are they going to have funds available?

 

[rogerroger]

@jjp297 I don't have any issue paying capital gains on my investments especially when my interest in this agreement would be the capital gain.

BIL would gain equity by means of the principal portion of his mortgage payment. I would even consider option for them to invest back into the house or buy me at at whatever the current value of market at time of their repayment. (I assume this would muddle my tax/legal Billings tho *if not done on full)

This rental market has tenants paying much more than a mortgage payment. Sometimes double (especially considering he/they would keep the principal of the proposed mortgage payment). Near impossible forany to save for a downpayment.

This is where the mutually beneficial opportunity lies.

Also, Thank you for your comments (no sarcasm here). I do appreciate having the brain exercise of talking this through with fellow Redditors.

 

[jjp297]

@rogerroger @capd1 and @dingerdad have a good idea of you just buying it, and charge then rent to cover the costs. Since it's a cost sharing agreement, no rental income and expenses to report on your taxes. When they save up enough for a downpayment, they can buy the place from you at FMV.

 

[capd1]

@rogerroger If you are putting 100% down, why not just have them pay rent.

If not looking for profit, which I assume not, just charge them for the cost of mortgage.
Keep in mind property taxes and fixes.

I would suggest this as you get a trusted renter. They get the ability to save money and purchase their own house.

If in future you want more loans, housing/car etc. that second mortgage will show up

 

[dingerdad]

@rogerroger Buy it for 100% and then give them a low rent rent that allows them to save and for you to see some cashflow. Once they can afford it, sell the place to them at current value and offer a private mortgage where you can choose the interest rate.

 

[tlcasey100]

@rogerroger It's definitely achievable. If you want to be fair, it will be annoying.
Consider this in your lawyer vented agreement :
Who owns the property (percentage wise) as your BIL pays mortgage and taxes as part of home ownership
Who gets the say in selling?
What happens if your BIL defaults?
Who does maintenance?
Who's name is on the deed? How is it going to affect the ownership split as your BIL continues to build up equity?
Who pays for insurance? What's the split?
There must be similar situations a property lawyer encountered.

Or simply, get your BIL to pay you rent and you pay the taxes, mortgage, and insurance.

Keep in mind, if you do 20% down, you will most likely paying out of pocket to cover whatever shortfall as most home owners can't breakeven with mortgage and taxes... Especially if you give below market rent to BIL.

Doing business with relative is a tricky business.

Remember, you are not dealing with just your BIL and wife, you are dealing with their kids as well if they manage to live there for very long time, their kids will not be as generous and grateful to you as their parents. Any item left unchecked will be challenged to court.

 

[its_namex]

@rogerroger I recommend that you register a second mortgage on the house owned by your sister in the amount of the downpayment and all purchase costs. Ensure you set up a payment schedule written into the mortgage, with a system whereby you can allow them to skip payments if they can't afford it. Ensure the first mortgage allows the registration of a second mortgage. The mortgage will demand a subprime rate - you are obliged to do so anyway by tax law for non-arms-length investments. You can always give them the money back later as a gift if you like. I strongly recommend that you don't co-own the house with them. This protects you in case things go south - you never know when family relationships will break down - hopefully your sister has a pre-nup agreement with her husband that covers asset distribution and responsibilities - if not, it's not too late to sign one.

You can have one lawyer take care of all of the above at once.