Rental Property with Sibling Questions

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
HeartinAK
Posts: 16
Joined: Fri Oct 21, 2016 12:54 pm

Rental Property with Sibling Questions

Post by HeartinAK » Fri Aug 10, 2018 9:43 am

Good morning. Hoping for any advice or thoughts from folks.
My sister and I are going to buy my parents house solely for a rental. We will be going in 50/50 and will carry a mortgage on it.
She has gotten a recommendation to setup an LLC to buy/operate the rental. I have been told by a friend to look into a trust.
Does anyone have experience with this type of arrangement or have any thoughts as which would be the better way to go?
I really don't know anything about this type of thing. We want to keep it as simple as possible but don't want the rental tied to our personal assets.

Thank you for any info.
Jules

johnubc
Posts: 714
Joined: Wed Jan 06, 2010 6:54 am

Re: Rental Property with Sibling Questions

Post by johnubc » Fri Aug 10, 2018 10:01 am

I would suggest that you do not do it. Sell the home and split the proceeds. You will be far better off and have a better relationship with your sister.

Jack FFR1846
Posts: 7771
Joined: Tue Dec 31, 2013 7:05 am

Re: Rental Property with Sibling Questions

Post by Jack FFR1846 » Fri Aug 10, 2018 10:04 am

How about this? Your parents sell their house themselves. If you and your sister are itching to become partner landlords, you find a property that fits the requirements to give you income.
Bogle: Smart Beta is stupid

ResearchMed
Posts: 7166
Joined: Fri Dec 26, 2008 11:25 pm

Re: Rental Property with Sibling Questions

Post by ResearchMed » Fri Aug 10, 2018 10:07 am

HeartinAK wrote:
Fri Aug 10, 2018 9:43 am
Good morning. Hoping for any advice or thoughts from folks.
My sister and I are going to buy my parents house solely for a rental. We will be going in 50/50 and will carry a mortgage on it.
She has gotten a recommendation to setup an LLC to buy/operate the rental. I have been told by a friend to look into a trust.
Does anyone have experience with this type of arrangement or have any thoughts as which would be the better way to go?
I really don't know anything about this type of thing. We want to keep it as simple as possible but don't want the rental tied to our personal assets.

Thank you for any info.
Jules
How are you going to get the mortgage?
Do you already have an LLC with rental income to qualify for the LLC's own mortgage?

IF you need to get a mortgage in your own personal names, then... that property IS going to be linked to your personal assets should there ever be a liability claim or such.

We had vacation rental cabins for several years (until we started traveling too much).
We had the mortgage in personal names, but we had all "publicity" items (website, logo'd souvenirs, etc.) display "CabinNames, LLC", and we DID have a legal LLC set up, in both our state and the properties' state. We filed business taxes, etc.

However, the property was not actually titled/owned by any "LLC" entity, but by regular people by name.
It would NOT have held up if some liability claim was won against us.

We had a very large commercial Umbrella policy. We figured that because we were not frequently present on the properties, we were needing to rely upon others (local manager, rental guests, etc.) for updates and actual care about potential problems like a nail sticking up on a stair, or carpeting loose, or a stone step coming loose, or "whatever", there was more risk than if *we* were there overseeing things all the time or most of the time.

Obviously, renting a single family house longer term is a lot easier, but the risks are still there.
Your homeowner's umbrella insurance *probably* won't cover a separate rental, so do check on that.

RM
This signature is a placebo. You are in the control group.

magicrat
Posts: 410
Joined: Sat Nov 29, 2014 7:04 pm

Re: Rental Property with Sibling Questions

Post by magicrat » Fri Aug 10, 2018 10:43 am

This sounds like a terrible idea. What is your reason for wanting to do it?

User avatar
gunn_show
Posts: 1453
Joined: Wed Jun 06, 2007 3:02 pm

Re: Rental Property with Sibling Questions

Post by gunn_show » Fri Aug 10, 2018 11:01 am

johnubc wrote:
Fri Aug 10, 2018 10:01 am
I would suggest that you do not do it. Sell the home and split the proceeds. You will be far better off and have a better relationship with your sister.
This. Sell, split proceeds, then go buy other property separately. Or, one sister buys this property and manages it. Would not do it together. Both your names' are on the title, odd mortgage setup, who pays bill and maintenance funds and when it needs a new roof or new tenant, etc. Really not worth the hassle. My family bought a vacation condo a year or two ago, and I did all the paperwork on the back-end in my name to simplify (including $2M umbrella policy as ResearchMed noted for safety), but it is "our condo" and there are a lot of hassles that go with it.
magicrat wrote:
Fri Aug 10, 2018 10:43 am
This sounds like a terrible idea. What is your reason for wanting to do it?
And this. Can you elaborate OP why you and your sister want to do this? Parents still alive? Buy it and rent back to them or to just regular market renter? What are all the goals here?
"The best life hack of all is to just put the work in and never give up." Bas Rutten

HeartinAK
Posts: 16
Joined: Fri Oct 21, 2016 12:54 pm

Re: Rental Property with Sibling Questions

Post by HeartinAK » Fri Aug 10, 2018 11:37 am

Thank you so much for the replies. Really good things pointed out here that I need to think about. We don’t have any kind of LLC or any past or present property investments.

The only reason we are considering this is because my parents have moved up to a place on my sister’s property. They are thinking about selling their house to a flipper for way under market value. They just don’t want the hassle of dealing with a realtor and want to be done with it. We have tried talking them out of it but they won’t hear it. They just want the money to pay off the house they put on my sisters property.

We thought that we would be better off taking the investment opportunity than letting it go to the flipper. It is all happening fairly fast and we just started to consider purchasing it together. We do not have cash to cover the entire purchase so would have to finance.

I appreciate the thoughts about the liability of it all and I guess that would be our largest concern. We are realistic in that any profit would come at the sale of the house down the road, probably 10 years or so. We just might reconsider this if it looks like it might be too involved. Just hate to see them sell it for so little but it is their house in the end.
Jules

Nate79
Posts: 3474
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Rental Property with Sibling Questions

Post by Nate79 » Fri Aug 10, 2018 11:56 am

Have you even analyzed if this is a good rental or not? Do you know how?

NotWhoYouThink
Posts: 2043
Joined: Fri Dec 26, 2014 4:19 pm

Re: Rental Property with Sibling Questions

Post by NotWhoYouThink » Fri Aug 10, 2018 12:15 pm

We thought that we would be better off taking the investment opportunity than letting it go to the flipper.
You know those aren't the only two choices. So you could offer to be the interface with the realtor as you try to sell it at market value instead of taking lowball offer from the flipper. That would be a great way to use your time and energy to help your parents, and would also help you learn a little about real estate.

jminv
Posts: 537
Joined: Tue Jan 02, 2018 10:58 pm

Re: Rental Property with Sibling Questions

Post by jminv » Fri Aug 10, 2018 12:27 pm

HeartinAK wrote:
Fri Aug 10, 2018 11:37 am
Thank you so much for the replies. Really good things pointed out here that I need to think about. We don’t have any kind of LLC or any past or present property investments.

The only reason we are considering this is because my parents have moved up to a place on my sister’s property. They are thinking about selling their house to a flipper for way under market value. They just don’t want the hassle of dealing with a realtor and want to be done with it. We have tried talking them out of it but they won’t hear it. They just want the money to pay off the house they put on my sisters property.

We thought that we would be better off taking the investment opportunity than letting it go to the flipper. It is all happening fairly fast and we just started to consider purchasing it together. We do not have cash to cover the entire purchase so would have to finance.

I appreciate the thoughts about the liability of it all and I guess that would be our largest concern. We are realistic in that any profit would come at the sale of the house down the road, probably 10 years or so. We just might reconsider this if it looks like it might be too involved. Just hate to see them sell it for so little but it is their house in the end.
Jules
If they are selling it for under market value, then you and your sister could buy the house and flip it yourselves (or do it by yourself). I say that instead of helping them with a real estate agent because they're not interested in that and in a hurry to sell. If you live in the area, that's even better since coordinating the process will be even simpler. The house does have to be truly under market value in its current shape except for some minor cleaning up that you could do yourself or have done cheaply. Speak to some realtors about what price they would list the property for to make it move quickly so that you'll have an idea about the true value of it in its current state. I'd look at the common realty valuation sites (eg Zillow) and see the comps they use to value your parents house and if they are really comparable. Don't know where you live, but Redfin offers lower selling commissions, good pics, and a more data driven idea of the valuation.

I'd buy it to capture the differential between the flippers discount and the market value, less selling and carrying costs. I wouldn't buy it with the intention of renting it since that would not follow from the reason you want to buy it in the first place: your parents want to sell the home under market value. To obtain that market value, you need to sell it, not rent it. I'd try to sell it as quickly as possible and price accordingly since you probably don't want to hold it into the idle season. If it doesn't sell, then you would have a fallback plan (rent).

User avatar
gunn_show
Posts: 1453
Joined: Wed Jun 06, 2007 3:02 pm

Re: Rental Property with Sibling Questions

Post by gunn_show » Fri Aug 10, 2018 12:41 pm

jminv wrote:
Fri Aug 10, 2018 12:27 pm
I'd buy it to capture the differential between the flippers discount and the market value, less selling and carrying costs. I wouldn't buy it with the intention of renting it since that would not follow from the reason you want to buy it in the first place: your parents want to sell the home under market value. To obtain that market value, you need to sell it, not rent it. I'd try to sell it as quickly as possible and price accordingly since you probably don't want to hold it into the idle season. If it doesn't sell, then you would have a fallback plan (rent).
I agree with this but I don't.

The problem here is this option incurs 2 sales and all the associated costs and hassles (parents sell to kids > kids sell on open market > end buyer). Waste of a large portion of the profit margin most likely. Unless the parents can quit-claim the property to the daughter(s) today with no cost, and then there is only the one sale/costs once the sisters list and sell on the open market. Lot of assumptions here, it would be helpful if the OP posted some theoretical prices - currently the house on Zillow/Realtor.com is stated to be worth X and the flipper wants to offer Z% less than X. Give us an idea of what the "perceived" value loss is by parents selling to the flipper. It may not even be worth the hassle unless we are talking $50-100k once you factor in time, sales costs, hassle, market conditions, etc. Way too many assumptions here. I still think she should just take over control and help sell it traditional way and take part of the increased profit. Much, much cleaner.
"The best life hack of all is to just put the work in and never give up." Bas Rutten

User avatar
Sandtrap
Posts: 5320
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Rental Property with Sibling Questions

Post by Sandtrap » Fri Aug 10, 2018 12:49 pm

HeartinAK wrote:
Fri Aug 10, 2018 9:43 am
Good morning. Hoping for any advice or thoughts from folks.
My sister and I are going to buy my parents house solely for a rental. We will be going in 50/50 and will carry a mortgage on it.
She has gotten a recommendation to setup an LLC to buy/operate the rental. I have been told by a friend to look into a trust.
Does anyone have experience with this type of arrangement or have any thoughts as which would be the better way to go?
I really don't know anything about this type of thing. We want to keep it as simple as possible but don't want the rental tied to our personal assets.

Thank you for any info.
Jules
1. Are you experienced landlords with other rental properties?
2. Has either of you owned a property and rented it out, screened tenants, managed, etc?
3. Do either of you have ambition to be landlords or income property owner and developers?
4. Do either or both of you live within an easy driving distance of the property?
5. Will either or both of you be responsible for tenant showings, interviews, and trouble calls, as well as inventory check-in's and check outs >> or will both of you be delegating the rental duties (at a price) to a rental management company?
6. Do either or both of you eventually want to live in your parent's home?
7. Is there a motivation to keep your parent's home "in the family"?
8. Where are your parent's moving to? Rent? Own another home?
9. Why are you going 50/50 with your sister? Because of the ability to pay the mortgage on the home? Can either of you pay the mortgage payment outright if one did not and the home happens to have a long term vacancy?

A. You do not need an LLC or a trust to own and rent out a home that you both own.
B. You will both have additional liabilities when owning a property and renting it out, as much as you would owning a property and living in it yourself.

User avatar
backofbeyond
Posts: 235
Joined: Tue Apr 01, 2008 1:07 pm

Re: Rental Property with Sibling Questions

Post by backofbeyond » Fri Aug 10, 2018 1:09 pm

Like so many others mentioned, I'd recommend put it on the market and split the profits. Save you and your Sister a LOT of heartaches. I learned the hard way.

I was the Trustee for both of my parents estates (they were divorce). The first passing broke the family apart, as siblings wanted different things done with the family ranch. One of the 5 sued the other 4. Lost but the estate had to pay for legal fees regardless.

Second passing went better, as there was a set schedule of when Real Estate was to be sold. The problem there was the passing was in 2007, when property prices were sky high, but I wasn't allowed to sell until 5 years later, by then the market had plummeted. The property was worth 1/10th of what it was in 2007. Still worth only 1/3 of what it was in 2007.

Major headaches along the way, hated it so much that I've decided I will never own RE property again and never ever go into business with my siblings.
The question isn't at what age I want to retire, it is at what income. - George Foreman

NotWhoYouThink
Posts: 2043
Joined: Fri Dec 26, 2014 4:19 pm

Re: Rental Property with Sibling Questions

Post by NotWhoYouThink » Fri Aug 10, 2018 1:14 pm

Like so many others mentioned, I'd recommend put it on the market and split the profits
Split the profits with whom? It didn't sound like the parents were giving the property to OP and sibling, but that the parents were prepared to accept a lowball offer in order to avoid the hassle of selling.

If OP and sibling can get a higher price for the parents without a lot more work, that sounds like a good plan.

User avatar
wabbajack
Posts: 186
Joined: Sun Mar 25, 2018 8:05 pm
Location: Indianapolis

Re: Rental Property with Sibling Questions

Post by wabbajack » Fri Aug 10, 2018 2:59 pm

HeartinAK wrote:
Fri Aug 10, 2018 11:37 am
The only reason we are considering this is because my parents have moved up to a place on my sister’s property. They are thinking about selling their house to a flipper for way under market value. They just don’t want the hassle of dealing with a realtor and want to be done with it. We have tried talking them out of it but they won’t hear it. They just want the money to pay off the house they put on my sisters property.
What is their aversion to dealing with a realtor? Put some numbers on it. If that number is worth the peace of mind to them, I say let them sell it to the flipper. As others have pointed out, being a landlord is work; and working with your siblings... is messy.

adamthesmythe
Posts: 2272
Joined: Mon Sep 22, 2014 4:47 pm

Re: Rental Property with Sibling Questions

Post by adamthesmythe » Fri Aug 10, 2018 5:13 pm

It's unwise to own and jointly manage a property.

It's hard to believe that there is much inconvenience associated with selling a property that is not occupied. No, you don't have to do a makeover to get a better price than the low-ball price offered by a flipper.

Besides, renting a property will require a degree of makeover anyway.

Jill07
Posts: 159
Joined: Sat Mar 24, 2007 6:19 am

Re: Rental Property with Sibling Questions

Post by Jill07 » Fri Aug 10, 2018 7:30 pm

I would consult with a few Realtors.

There is a house on my street that is a mess. It needs everything.. roof, siding, windows, driveway, kitchens, baths etc There was one owner for 40 years & little maintenance was done. The family needed to sell it. A flipper did make a lowball offer, which the family rejected.

They hired a Realtor who listed the house much higher than the lowball offer (at least 50-80K higher). We didn’t think it would sell at the higher price. But, they got 3 offers the first weekend and sold for more than they were asking. Another flipper bought it. The family didn’t even have to clean out the house & they did nothing prior to listing the house. It was sold as is.
.

HeartinAK
Posts: 16
Joined: Fri Oct 21, 2016 12:54 pm

Re: Rental Property with Sibling Questions

Post by HeartinAK » Sat Aug 11, 2018 10:21 am

Thank you all for your replies. Reading them has made me slow down and rethink things.
I think we will start with the option of helping our parents go through a realtor. It is hard for me as I am in another state but can assist my sister any way I can.
She has owned rentals prior and we would use a property manager if we did this. I am leaning heavily towards not though at this time. I think there are too many cons and not enough pros :)
Thank you all again so much for taking the time to offer your suggestions, guidance and experience.
Jules

Gardener
Posts: 205
Joined: Sun Nov 18, 2012 3:03 pm

Re: Rental Property with Sibling Questions

Post by Gardener » Sat Aug 11, 2018 10:28 am

The fact that you are out of state makes it even more of a hassle to purchase with the idea of renting it out.

gtd98765
Posts: 96
Joined: Sun Jan 08, 2017 4:15 am

Re: Rental Property with Sibling Questions

Post by gtd98765 » Sat Aug 11, 2018 11:55 am

Do you want to have a sister or a business partner? I would rather have the first. But in my experience once there is business and money involved, family relationships start to suffer. I have seen too many sad stories develop. I would never do business with a family member; you can always find another business partner if you want one. Another sister, on the other hand, is unlikely to appear.

HeartinAK
Posts: 16
Joined: Fri Oct 21, 2016 12:54 pm

Re: Rental Property with Sibling Questions

Post by HeartinAK » Sat Aug 11, 2018 11:24 pm

Good advice Gardener and GTD98765. I agree with what you and others have said.
I will be passing on buying the property and instead try to make sure my parents can work as stress free as possible with a realtor to get the best price they can.

Jules

denovo
Posts: 4348
Joined: Sun Oct 13, 2013 1:04 pm

Re: Rental Property with Sibling Questions

Post by denovo » Sat Aug 11, 2018 11:38 pm

HeartinAK wrote:
Fri Aug 10, 2018 9:43 am
Good morning. Hoping for any advice or thoughts from folks.
My sister and I are going to buy my parents house solely for a rental. We will be going in 50/50 and will carry a mortgage on it.
She has gotten a recommendation to setup an LLC to buy/operate the rental. I have been told by a friend to look into a trust.
Does anyone have experience with this type of arrangement or have any thoughts as which would be the better way to go?
I really don't know anything about this type of thing. We want to keep it as simple as possible but don't want the rental tied to our personal assets.

Thank you for any info.
Jules
Don't do it.

viewtopic.php?t=226980
3. No partners- I would not consider landlording if you need to invest with partners outside of you and your spouse (such as co-workers, siblings, in-laws, parents, adult children). There are a lot of decisions that need to be made that are judgement calls (who to rent to, how much to increase rent, should this be replaced). There will be eventually disagreements. The place may need an infusion of cash because of needed renovations or a long-term vacancy. If your business partner is having financial problems, they are now your problems. I have many relatives who are not on speaking terms because of these disputes. Don't let that happen to you.
"Don't trust everything you read on the Internet"- Abraham Lincoln

HeartinAK
Posts: 16
Joined: Fri Oct 21, 2016 12:54 pm

Re: Rental Property with Sibling Questions

Post by HeartinAK » Sun Aug 12, 2018 11:21 am

Good read Denovo. Thank you!
Jules

Post Reply