Structuring A Contract-HELP!
Hi All,
I need some help with a contract. I am purchasing a 3/2 with my credit and a partner’s cash (his cash will likely come to me in the form of a monthly payment, this is not yet settled). Once I own the property, we will rent it out by room to college students. My partner will live there as the head of the house, so to speak. He collects rent, makes sure things run smooth. In the future, if we sell, we split the equity. Meantime, we split the cash flow from rental income.
Any ideas on how to structure? It will be on my credit. So, I would prefer to have him as a renter on a rental contract so I can evict rather than foreclose if he defaults on payments. But how and on what instrument do we spell out all the other details??
Many thanks in advance, Brian
[ Edited by bnwbaron on Date 09/06/2006 ]
You said, "once I own the property..." Is your partner not going to be an owner? I would assume that he might want to have some ownership since he is providing the money to enable the purchase. If you are both on title and he is a tenant as well, you may run into problems with an eviction since he is an owner.
Are you concerned about his honesty or his ability to pay his share of the rent? If you are concerned about honesty, you might want to find another partner.
One possible solution is to form a corporation (probably LLC) and then have the corporation lease to tenants including your partner. The problem with that is that unless you have majority ownership he might not agree to have the corporation evict him.
Another thought is to take his money as option consideration to purchase in the future. You make the down payment with that money and put the property in your name. You lease it to tenants and let him be the manager for which he gets half the cash flow as compensation. The option gives him the right to purchase your property at half-price at a future time. You then find a full price buyer and do a simultaneous close so he realizes his half and you get your half at closing.
Another iteration on this is to have the option consideration be paid monthly. If he defaults, then he loses the option consideration and the property is all yours. That should motivate him to perform.
This needs to be fine tuned since you may need to further distribute benefits, but perhaps this is a start for you and your partner.
[ Edited by edmeyer on Date 09/06/2006 ][ Edited by edmeyer on Date 09/06/2006 ]
Good response, I would lean towards the L/O. He is going to be half owner, but since it is on my credit, I want to protect against the unlikely event of a default on his part.
Any other opinions??
Thanks, Brian