Tenants in Common (TIC) Agreement?

[LeBlanc]

Was hoping someone could point me in the right direction. I am buying a home in N. LV this Fall (I am financing myself) but will be having my brother live in and be a tenant....but at the same time, he will also be "part owner" in the fact that his monthly rent will actually allow him to be part owner in the property. I plan on putting 20% down on a 15 yr fixed rate mortgage, having him rent at market value with a roommate (will have lease for sure) and I also plan on contribting to the mortgage payments. In the end, whenever that may be, the objective is that when we sell (mid to long term horizon) whatever percentage he applied to the mortgage he would reap the benefits of on the proceeds and the same would go for me. For example, if he contributed 30% and I 70% to the mortgage, maintenance and upkeep of the property, when we sold, he would get 30% and I would get 70% of the proceeds. Please fill me in if that doesn't make sense or I'm missing something.

So, to protect us both in this situation, what's the best type of "contract" to get into? TIC? Other suggestion? Thank you.

 

[OAG]

You by it in your name only. Side written agreement regarding the split at sale and, in case of death, your will spells out his benefit; his will spells out your benefit. Covers most contingencies: Death, his not paying rent, you wanting to sell early, etc. I am sure there are other convoluted way of doing it - but why? Remember this is my idea only and has absolutely no legal or other value to you, me or anyone else.

 

[ChrisC]

I think what you're missing is how "ownership" in your name only or, alternatively, in your name and your brother's name jointly could affect a myriad of circumstances: (1) financing the property as investor property(in your name only) or as owner-occuppied (in joint names) property could affect the interest rate you obtain, (2) allocation of potential tax benefits between you and your brother that might result from your sole ownership or joint ownership such as the mortgage interest and real property tax deduction or the qualified sales exemption from gain of $250K or $500K, (3) potential credit and liability concerns if something goes wrong with debt service or if someone gets injured at your property, nothwithstanding insurance protection and (4) elder care/Medicaid rules that might be tripped if you or your brother might be getting old in the tooth.

I would consult an accountant and lawyer about this and would not take any advice over the internet as providing you with sound guidance. A lawyer might suggest that you eventually drop ownership of the property into an LLC, in which your share and your brother's share in the LLC would be proportionate to the respective contributions you both would make for the property. This might avoid some of the "probate" and title succession issues mentioned by OAG. I would not follow the side agreement approach outlined by OAG, if your intent is to treat your brother fairly. (Wills can always be changed, repudiated, or lost so there's no assurance that benefits spelled out in a current Will -- will in fact remain in tact when probate occurs.) Get a lawyer to handle this for you and your brother so that you can be square with him and not appear to be overreaching.

 

[socca]

There was an article in today's paper about a real estate TIC arrangement that turned into a disaster for the investors when the deal fell apart. Getting professional advice from a lawyer who specializes in real estate seems like a good idea.