My sister and her husband live in Chicago but have asked me to look into buying a rental property in Los Angeles. I have some cash available but not enough to buy a decent multi-unit property in Los Angeles by myself. Preliminary terms would be that I would put in 1/4 of the down (~50k), they would put in 3/4 (~150k) and I would manage the property, with cash flow after all expenses/debt service/etc to be split(these are extremely preliminary terms). Outside of skimming the real estate investing thread, I have no experience managing or owning property, although I would like to learn more and get some hands-on experience.

They would like to buy by the end of 2011. Something about putting money in certain investments that are shielded if they get sued for malpractice (they are both doctors). For now I told them I would not feel comfortable with any more than a 3-unit property and would prefer a duplex. It also would need to be less than an hour drive (basically LA County) and not in a terrible neighborhood, as I would most likely be going there at night after work or on the weekends.

I'm sure this plan is filled with pitfalls and downside risk, it is definitely in the "just-talking" stages but my sister wants this to happen by the end of the tax year. I have been to a couple open houses for duplexes over the past year but nothing too serious. My sister and I have a good relationship and she and her husband understands the risks, they are more looking for a place to park their money so they don't have the malpractice risk. We will definitely be talking to an accountant to understand the tax implications as well.

I will definitely be taking the time to re-read the real estate investing thread, but I'm hoping that a Tien or spex or any of the numerous experienced rental property owners could give me their thoughts.

This sounds like a pretty bad idea. I'm taking it the house will be in your name only? Sounds like some weird tax implications. Why don't they just set up some annuity if they're that worried about it? It worked for OJ.

You need to clarify how this protects them from judgements?

Is it something about legal exemptions for particular types of investments or is the property going to be only in your name with the profits being give to sister clandestinely?

So you put up 1/4 and get 1/4 of the profits except you have to manage the property? Doesn't sound like a great deal for you.

OP didn't say how they'd split profits.

Also, something like this could ruin your relationship.

Sure doesn't. OP, you should know that the customary management fee is 10% of the rent, right off the top.

Also, if it's going to be only in your name, can you qualify for a million dollar mortgage? BTW, if your sister and hubby get sued, you can bet the lawyers will notice a $150k withdrawal from their account at the same time you made a $150 deposit. Are you prepared to either commit perjury on the stand or throw your sister under the bus? Who hatched this scheme? They should run it past their lawyer first.

It seems like a trust or something like that would be a better idea for them.

Why don't you each just take your money and invest it in as diversified portfolio as possible? You can still get some exposure to RE if you'd like. For 1% per year or less you can have someone making all of the decisions for you or you can do it yourself for a small fee per trade (I don't recommend this unless you really know what you are doing).

The time it's going to take you to manage this is going to be far greater than what you think. To start, you should read the spex real estate thread.

If you're investing in real state in partnership, you should probably form an LLC to buy the property. It sucks that you're buying in California, because opening a LLC there is very expensive. Still I would do some research on it. You can set up the operating agreement to spell out what each's person pariticipation is. You can set yourself up as manager.

If your partners are trying to shield themselves from lawsuits, I know Nevada LLCs are great for privacy, also great for shielding both from external lawsuit (unrelated to the property) or a lawsuit from the tenants. They can be set up such that there's no public record of them being members of the company. They just declare earnings and losses in their tax return, which is protected by law.

They can also open a private Nevada LLC with a nominee manager to park any assets that they want protected and private, like cash, stocks, funds, etc. Some people do this to hide assets from their significant others, but you didn't hear it from me.

Can u do this in other states ?

Florida ?

You can open a Florida LLC for cheap, but Florida doesn't have the same protection or privacy laws that Nevada has.

Fortunately you don't need to reside in Nevada, or the US for that matter, to open a Nevada LLC. I think you can do the filing online with the secretary of state, or hire a service to file for you. The only thing you need in Nevada is a registered agent with a physical address to receive notice of process mail (legal notices). It's pretty economical to hire that service.

Other states that provide protective LLC laws are Wyoming and Delaware. Each has their own quirks. I like Nevada because there's no corporate state taxes, no franchise taxes, laws are very protective. It more expensive to open one than in Delaware (some $300 to $400 vs about $80) but recurring yearly costs are cheaper.

Seems to violate two old standbys of investing:

- don't invest with family or friends
- don't put things in your name that are actually someone else's because it helps them with tax/legal issues

So much can go wrong in either situation.

buying rental property with family members:

Been there, done that.

Please don't do it.

The risks & downside greatly outweigh the upside.

PrideofCoc,

what happened with your quadplex? in tampa? iirc you were going to walk away. you were pretty massively upside down; did you track what happened to the prop after you let it go? just curious.

Read the spex thread.

Altho this is great advice , it is quite large and overwhelming

Has anyone made a best of?

Does 2+2 have copyright on the info?, could prolly make a great book just copy pasting key thoughts, questions, concerns, and the answers to them(from you and spex)

Someone made a best of spex posts. Or an entire compilation of it.

Unfortunately it is buried deep inside that thread.

The thing is. That thread isn't meant to be read once. If you are a complete noob, you need to be reading that thread over and over every few months. You gain new knowledge that you weren't ready to learn each time around.