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I need some advice on purchasing a multi-family home in NY with an
associate, sharing equal title ownership.
What I would like is for my share to be paying the down payment, about
30%, and have the other party pay the remaining 70% (mostly with a
mortgage).
To balance this, the other party would be responsible for collecting
and handling all the rental income.
Once the home is paid off, I would like the rental income to be shared
50/50.
Is this done, is it common, is it even possible? Is a contract
necessary?
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nymphetamine@mail.com wrote:
I need some advice on purchasing a multi-family home in NY with an
associate, sharing equal title ownership.
What I would like is for my share to be paying the down payment, about
30%, and have the other party pay the remaining 70% (mostly with a
mortgage).
To balance this, the other party would be responsible for collecting
and handling all the rental income.
As well as maintenance expenses? Who pays if the
furnace dies? In the middle of winter, of course! ;)
Once the home is paid off, I would like the rental income to be shared
50/50.
Is this done, is it common, is it even possible? Is a contract
necessary?
Definitely necessary. You need to specify such things
as:
- one person wants to buy the other out.
How is this handled? Be careful with 'shotgun'
clauses!
- one person wants out. What if the mortgage is
still too large for the remaining person to assume
alone?
- one person dies, or is otherwise unable to perform
his contracted tasks. What happens then?
- one person declares bankruptcy. Can the other be
held in some way financially liable?
I'm sure there are other possible scenarios. A brief
chat with a laywer might be in order...
HTH
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I need some advice on purchasing a multi-family home in NY with an
associate, sharing equal title ownership.
What I would like is for my share to be paying the down payment, about
30%, and have the other party pay the remaining 70% (mostly with a
mortgage).
To balance this, the other party would be responsible for collecting
and handling all the rental income.
Once the home is paid off, I would like the rental income to be shared
50/50.
Is this done, is it common, is it even possible? Is a contract
necessary?
A contract is the only way to handle this. Hopefully your associate is not
a friend. The odds are that if he is, this will be the end of the
friendship.
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Randy Day wrote:
As well as maintenance expenses? Who pays if the
furnace dies? In the middle of winter, of course! ;)
- one person wants to buy the other out.
How is this handled? Be careful with 'shotgun'
clauses!
- one person wants out. What if the mortgage is
still too large for the remaining person to assume
alone?
Both parties will be responsible for maintenance.
If one wants to buy the other out, or if one can't pay, what options
are there besides selling?
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nym9 wrote:
Randy Day wrote:
Both parties will be responsible for maintenance.
If one wants to buy the other out, or if one can't pay, what options
are there besides selling?
There are only three ways out of this situation:
- sharing on into the future
- one side buys out other
- one side walks away (essentially a buyout for $0.00)
(okay, four, if you count *both* sides walking away! :)
The best way would probably be to incorporate, and
split the shares. Then you can sell shares back and
forth, and the share prices need not represent the
true value of the assets owned (although they usually
will).
Again, chat with a lawyer...
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Bubba wrote:
A contract is the only way to handle this. Hopefully your associate
is not
a friend. The odds are that if he is, this will be the end of the
friendship.
What makes it unfair? Why is a contract necessary?
All I am doing is giving up my share of the rental income until I
decide to receive it again.
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nym9 wrote:
Bubba wrote:
is not
What makes it unfair? Why is a contract necessary?
Because with no contract, if you two ever have a
non-resolvable disagreement between you, you'll
be in front of a judge with expensive lawyers in tow.
One scenario: your partner dies & leaves his
half-share to his wife. Wife assigns her lazy slob
nephew to manage the place, & he runs it into the
ground. What is your recourse?
Yet another scenario: you encounter a cash flow
problem, and want to sell the property. Your partner
can't qualify for a loan, but he likes the monthly
paycheck, doesn't want to sell, and doesn't like
who you've picked out to sell *to*, so he won't
agree. What is your recourse?
All I am doing is giving up my share of the rental income until I
decide to receive it again.
What if your partner doesn't agree that it's time
for you to start receiving it again? What is your
recourse?
A contract does not imply a lack of trust
between you *now*. It's to clarify rights &
responsibilities into the future in case the
situation *changes*.
The thing is, you don't *have* to adhere to the
contract; if you two want to make handshake deals
on the side, no one wll stop you. But if you
*can't* agree on an issue, the contract is a
baseline set of rules that *can and will* be
enforced under the Law.
Think of it almost as you would a Will. It's a
set of procedures and instructions to be followed
by all parties in the event that the future is
*not* like the present.
BTW, IANAL
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[ This is getting a bit far afield from 'law'. follow-ups trimmed -- to
"misc.invest.real-estate" only. ]
In article <f9j191dfhp5h2juv5d6i15cno6cbu6caje@4ax.com>,
nym9 <nymphetamine@mail.com> wrote:
Bubba wrote:
is not
What makes it unfair? Why is a contract necessary?
All I am doing is giving up my share of the rental income until I
decide to receive it again.
A contract is not necessary.
*UNTIL* there is a problem. Be it a 'disagreement', a 'mis-understanding',
or an inability for one side to 'perform'. Then there is the issue of
'who meant what'. Since there is no _record_, and the parties do not
agree on 'what was meant', the *only* way to resolve the matter is through
the courts. Which is _very_ expensive, and leaves *no*one* satisfied.
Just a _few_ of the things your 'outline' fails to cover:
1) what happens if it becomes necessary to sell the property *before*
the mortgage is paid off -- how do you determine how much equity
each owner has? Don't think this is possible? Look up the government's
power of "eminent domain" -- you don't necessarily have any choice.
2) What happens if one party *dies*? The 'estate' has different priorities
than the living person did.
3) Who is responsible if expenses are higher than income? Suppose tenants
move out, and you can't replace them _immediately_.
4) suppose there are _large_ unexpected expenses, who pays? A "normal
wear-and-tear issue" that is not covered by insurance. Like the furnace
dies in the middle of the winter. Or lead-based paint is discovered on
the walls. Or the electrical wiring is discovered to be 'deficient' to
code requirements. Or a termite infestation is discovered. Or, or, or..
What if a tornado, or similar 'natural disaster', renders the place
'unlivable', until it is rebuilt. Yes, you have "insurance" that
covers the cost of the re-building, but _what_about_ the expenses
(like the mortgage) that are *still* running, even though there is
no income to pay them?
If you are entering into a "business venture" with someone, you need a
*BUSINESS*ARRANGEMENT* with that person -- one that expressly spells out
_all_ the contingency situations, and how they shall be handled.
What happens with the 'income' is the *smallest* part of the things that
have to be dealt with.
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Bubba wrote:
is not
What makes it unfair? Why is a contract necessary?
All I am doing is giving up my share of the rental income until I
decide to receive it again.
It appears you already have your mind made up. So, why ask for advice
if you are just looking for someone to agree with you. Actually, Randy
gave you the best solution to your problem.
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[ This is getting a bit far afield from 'law'. follow-ups trimmed -- to
"misc.invest.real-estate" only. ]
In article <f9j191dfhp5h2juv5d6i15cno6cbu6caje@4ax.com>,
nym9 <nymphetamine@mail.com> wrote:
Bubba wrote:
is not
What makes it unfair? Why is a contract necessary?
All I am doing is giving up my share of the rental income until I
decide to receive it again.
A contract is not necessary.
*UNTIL* there is a problem. Be it a 'disagreement', a 'mis-understanding',
or an inability for one side to 'perform'. Then there is the issue of
'who meant what'. Since there is no _record_, and the parties do not
agree on 'what was meant', the *only* way to resolve the matter is through
the courts. Which is _very_ expensive, and leaves *no*one* satisfied.
Just a _few_ of the things your 'outline' fails to cover:
1) what happens if it becomes necessary to sell the property *before*
the mortgage is paid off -- how do you determine how much equity
each owner has? Don't think this is possible? Look up the government's
power of "eminent domain" -- you don't necessarily have any choice.
2) What happens if one party *dies*? The 'estate' has different priorities
than the living person did.
3) Who is responsible if expenses are higher than income? Suppose tenants
move out, and you can't replace them _immediately_.
4) suppose there are _large_ unexpected expenses, who pays? A "normal
wear-and-tear issue" that is not covered by insurance. Like the furnace
dies in the middle of the winter. Or lead-based paint is discovered on
the walls. Or the electrical wiring is discovered to be 'deficient' to
code requirements. Or a termite infestation is discovered. Or, or, or..
What if a tornado, or similar 'natural disaster', renders the place
'unlivable', until it is rebuilt. Yes, you have "insurance" that
covers the cost of the re-building, but _what_about_ the expenses
(like the mortgage) that are *still* running, even though there is
no income to pay them?
If you are entering into a "business venture" with someone, you need a
*BUSINESS*ARRANGEMENT* with that person -- one that expressly spells out
_all_ the contingency situations, and how they shall be handled.
What happens with the 'income' is the *smallest* part of the things that
have to be dealt with.
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Bubba wrote:
is not
What makes it unfair? Why is a contract necessary?
I you have to ask that, you probably shouldn't be
doing this.
All I am doing is giving up my share of the rental income until I
decide to receive it again.
And when you "decide" to receive it again, if your "associate"
doesn't want to play along, what's your recourse without a
contract?
A contract will spell out *exactly* the terms of your
agreement, and will be usable in litigation should your
associate decide not to play along. Without the contract,
what are you going to show the judge that documents the
basis of your agreement?
..
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Randy Day wrote:
All I am doing is giving up my share of the rental income until I
decide to receive it again.
What if your partner doesn't agree that it's time
for you to start receiving it again? What is your
recourse?
Here is my point about that: When parties own a property, they are
entitled to an equal share of the rental income. Therefore, a partner
not agreeing is irrelevant. And if they act on that, and refuse to
share, its probably theft.
Thanks for all the information, I do understand now that it would be
best to involve an attorney and a contract.
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In article <8i0791hs5b6jq1pqi52dqj0eeu136uslld@4ax.com>,
nym9 <nymphetamine@mail.com> wrote:
Here is my point about that: When parties own a property, they are
entitled to an equal share of the rental income.
If you don't put up an equal share of the money to buy the place,
_WHY_ do you think you are entitled to an 'equal share' of the income?
If you put up 1/10 of the money, the argument could be made that you
have a 1/10 share in the property. And as such, are only entitled to
1/10 of the rental income -- that which comes from your 'share' of the
property.
If you get half the income, you're getting _nine_times_ the 'rate of return'
on your investment as the other owner is on his (nine-times larger)
investment. Do you think that _that_ if "fair"?
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From bon...@host122.r-bonomi.com (Robert Bonomi)
A contract is not necessary.
*UNTIL* there is a problem. Be it a 'disagreement', a 'mis-understanding',
or an inability for one side to 'perform'.
Another issue is that of taxes. In the rare case of an IRS audit
the presumption is an equally divided partnership in financial
matters unless there is a written contract and financial trail
otherwise.
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Randy Day wrote:
All I am doing is giving up my share of the rental income until I
decide to receive it again.
Here is my point about that: When parties own a property, they are
entitled to an equal share of the rental income. Therefore, a partner
not agreeing is irrelevant. And if they act on that, and refuse to
share, its probably theft.
Not in the absence of a written agreement. One might assume that they're
entitled to the same share of the income as their capital investment in the
property. But, you just as easily could have one partner who is investing
for the potential capital appreciation in the property while the other is
taking all of the operating income/loss. There's no way to tell or enforce
without a written agreement.
Thanks for all the information, I do understand now that it would be
best to involve an attorney and a contract.
Yes.
Ira Smilovitz
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nym9 wrote:
[snip]
Here is my point about that: When parties own a property, they are
entitled to an equal share of the rental income. Therefore, a partner
<sigh> Only if there's something in writing saying they're
50-50.
If cash flow goes negative, is each responsible for
50% of the shortfall as well?
Or, one side may decide they're doing 75% of the work, so
they should get 75%. Then it becomes a game of legal 'he
says - she says'. You get the wrong judge on the wrong day,
he may agree with the other guy...
not agreeing is irrelevant. And if they act on that, and refuse to
share, its probably theft.
Yes, it would be theft, *if* the partner could not justify
'retaining' the proceeds. If a partner wanted to screw you,
more likely you'd get pennies on the dollar, due to a
barrage of 'unforseen expenses', esp. if you're a
long-distance partner. That way he could claim he's making
a 'good faith' attempt to pay you 'something' in the face
of all the bills piling up...
Keep an eye on the books, and all should be well.
Thanks for all the information, I do understand now that it would be
best to involve an attorney and a contract.
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Robert Bonomi wrote:
In article <8i0791hs5b6jq1pqi52dqj0eeu136uslld@4ax.com>,
nym9 <nymphetamine@mail.com> wrote:
If you don't put up an equal share of the money to buy the place,
_WHY_ do you think you are entitled to an 'equal share' of the income?
All my assumptions are based on a previous question of mine involving
two parties buying a house together, and it was explained to me that if
one party decides not pay their share of the mortgage anymore, the
other party has no recourse at all. Meaning, all that matters is your
name is on the ownership title, and you have the exact same rights as
anyone else on there.
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In article <c3qc91930gm7ai7nd1a3akm68kvpt86ov0@4ax.com>,
nym9 <nymphetamine@mail.com> wrote:
Robert Bonomi wrote:
All my assumptions are based on a previous question of mine involving
two parties buying a house together, and it was explained to me that if
one party decides not pay their share of the mortgage anymore, the
other party has no recourse at all. Meaning, all that matters is your
name is on the ownership title, and you have the exact same rights as
anyone else on there.
This is yet another reason you need to have a *lengthy* consultation with
a real lawyer. Your 'conclusion' (that which follows: "Meaning, all that
matters..") does *NOT* follow from that which proceeds it.
The arrangements between 'partners' (or whatever) in a business relationship
bear *NO* relation to the arrangements with the mortgage holder. You can be
a part-owner of the property, and *not* be liable for the mortgage. You can
be liable for the mortgage, and _not_ have any ownership interest in the
property. (These are 'unlikely' scenarios, but they *are* _possible_.)
The mortgage *CONTRACT* almost invariably specifies that the borrowers
are 'jointly and severally liable' for the _entire_ amount. Which means
that if one party stops paying the mortgage owner, the mortgage owner _can_
(and usually *will*) come after the other signatory for the full amount.
That 'other signatory' has recourse against the non-paying signatory, *IF*
*AND*ONLY*IF* there is a _contractual_ agreement between _those_ parties
calling for payments to be made in some manner -- and which the non-paying
party is in violation of. Then the 'other party' can take legal action
against the non-paying party -- although their liability for the *entire*
debt to the mortgage owner is *not* affected or modified in any way.
Oh yeah, absent a _contract_ between the multiple buyers, specifying such
things, if one buyer stops paying on the mortgage, and the other has to
pay it _all_ off. the non-paying "owner" *still* has his 'undivided interest'
in the property, _just_as_if_ he had been making full payments. "Who owns
how much" of the property then becomes a _really_ messy situation. A court
battle, in a 'partition' action -- to 'divide' the undivided interest -- is
*inevitable*. The court may, or *may*not*, see things the same way as the
party who had to pay off the entire mortgage balance.
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