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investing in a duplex with brother

Snoopy8460

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i am going to buy a duplex with my brother it is a 4plex with just one title.
My brother will be selling his condo (market is good should have no problem selling) he should be able to put in about
30 % down payment we intend to do the same. He is going to move in and rent out the downstairs. On our side both side it will
Be rented out.
The primary reason of my doing this is to help get my brother get a leg up. But here is the complication...because he does not have a full time job the bank will not give him the full mortgage he needs. He does have 2 good job ...
I might have to carry the mortgage...can anyone give me any pointers of what the pitfall might be.
We intend to have a lawyer draw up an agreement..
I intend to help him regardless of how stupid some people may think this idea is..but I will greatly appreciate the best
Way to structure the agreement...if there is anyone that has done this would like to hear how it was done.
We also intend to stratify the property.. and maybe sell our side down the road...
Thank you for your suggestion in advance
 

Alvaro Sanchez

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I would have him on title and mortgage with a 50/50 deal. However, you need to be prepare to walk away by losing some money, brother or both. If you can not afford to lose $ or brother then do not do it.
 

Courtney Hammond

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I would also suggest that it be a 100% JV investment- meaning even though your brother is living there- he is paying whatever the other units are paying... but would also get paid a property management fee for managing the rentals.

When doing investments with family- or friends... it's always best if it is 100% structured as an investment you'd do with anyone... then work the family part in-- ie (he does the management and gets paid a management fee)

Since you are already thinking of making it a strata- you should have that in the agreement beforehand.

Since it's currently all on one title- you need to think of it as one investment that you are JV on. It isn't "he is buying half and we are buying half"-- it's "we are buying a fourplex. This fourplex must be profitable after mortgage, insurance, property taxes, and property management fees... it should also include a repairs fee. This should be based on market (or even better below market) rent of all four units.

We've personally lived in our JV houses before. The cleanest way to approach it is your brother is renting. That way- if he moves out.. it's just as if a tenant moved out. And if you apply for financing for something else- and they ask for the leases on the fourplex- you have four leases....

And as pointed out if you want a family deal- go 50/50 on it. If you want to be compensated for your mortgage ability.. do 60/40 or whatever you agree on.

Either way.. if it's a good investment... everyone wins.

If you do stratify- because it's a JV on the whole side- there has to be a buyout clause or as a JV- you are selling two units... and you split profits.

Clear- business must come first. The family help side is included in other ways.
 

Cory Sperle

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From personal experience this is a BAD idea. I helped two siblings, one with the purchase of a duplex and the other with a home purchase providing mortgage qualification and down payment. Both gained substantially financially because of this, however to this day both feel taken advantage of somehow and it's caused a rift ever since.

That being said I have done deals with family, and some have become repeat investors and it has become win/win. Screen your JV partners carefully and ensure they understand the value you put forth. This does not seem like the case here, in that he needs you more than you need him. You would both be better off if you assisted in advice on how to qualify on his own, or simply don't get involved if you wish to keep a good relationship with him. In my case my relationship with my siblings would be much better today had I not got involved at all.
 

adriano

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I agree with Cory that this is not a good idea. But as you said you will do it anyways. I would strongly suggest to put it in writing on everything you agree on so there is no misunderstanding.
Remember " if it's good enough to say it and agree on it then it is good enough to put it in writing"
 

Rickson9

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I would do this deal if I hated my brother and wanted to permanently harm the relationship.
 

Thomas Beyer

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You should ABSOLUTELY help a brother in need if you can and if he is indeed willing to commit. Only you can decide how risky your brother is or how high the risk is of him defaulting, being laid off and stop paying a mortgage. In any case, agree with your brother what he pays you for your additional risk to co-qualify for a mortgage (maybe $100/month or 10% of equity upside), and agree further what happens if he defaults on payments, such as you can sell the asset.

Taking on a mortgage is risky and as such has to get rewarded in some form, i.e. cash today, cash monthly or future cash (i.e. % of upside when it sells)
 
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Cory Sperle

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Yes Thomas I had the exact same understanding and good intentions as well but chances are it won't have a happy ending. There are many other ways you can help your brother other than doing a deal with him.
 

Thomas Beyer

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.. There are many other ways you can help your brother other than doing a deal with him.

Such as ?


Luke 3:11 John answered, "Anyone who has two shirts should share with the one who has none, and anyone who has food should do the same."

Here is how I understand this verse, in this blog context: Help folks where they need help. The brother did not ask for a new car, or cash, or a job, or bread. He asked for mortgage assistance. So why not give it to him if you can. Maybe one day he can carry you when you are in need ?
 

Cory Sperle

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Well that's not what I'm trying to say at all. I'm sharing a personal experience that sounds very similar to mine. The fact that this gent has indicated he will do it regardless tells me he already knows it's a mistake.

Suggesting that I would not help my brother in need or anyone else is simply false. He has a condo and employment and is seeking to get ahead in life and not merely survive.

The venture will go something like this. You will agree on a structure and split and everyone is happy. Slowly over time he will feel as though you are benefiting at a time when you were financially stronger than he was and hard feelings will arouse. I've seen this happen over and over in my extended family and many others and it's simply not worth risking the relationship. This is my opinion only based on real life experiences.
 

Rickson9

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Cory is correct.

The only way to teach a child that a hot stove will burn is to let them touch it.
 

Rickson9

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OP wants to touch a hot stove. OP will experience it. It's the only way. Nothing anyone says will prevent it.
 

adriano

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I think the question that should be asked is are you willing to possibly lose a brother over this?
As Cory has said no matter how good the intention is over time things change and sometimes it's easier for family to think you are benefiting from them and it gets all misconstrued.
I still think you should tread lightly with this situation
 

dpeacock

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"I intend to help him regardless of how stupid some people may think this idea is."

From what i read, the banks see your brother as too high a risk, so you want to be the banker for your brother.
If he pays his share, on time, all is well.
But what if he can't pay? The debt is on your back. Are you ok with making his payments?
Can you afford that?
How will you (and your significant other) feel if you do have to make payments for him?
Without knowing your brother, in my experience, being your brothers lender, has a high possibility of a poor outcome.
If you want to help him but don't want to be his lender, a gift with no expectation of repayment creates no tension.
Just my 2 cents.
 

Tina Myrvang

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I would seek and ILA (independent legal advice) before proceeding with any business with a family member, friend or neighbor.
 
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