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Interesting Way of Obtaining Ownership and Brand New to Real Estate - Seeking Advice

Been helping a friend get rid of a lien on his home for almost 10 years so that he could take advantage of the low-interest rates. Fast forward to today, we missed that train but on the upside, I was able to get rid of the lien which was about $30k worth of debt for nothing but my time in the 20-30 calls over 13 months.

As gratitude, he wants to give me 5% equity in his home which has about $580k in equity ($900k value; $320k mortgage). He also wants me to be "partnered" up with him since I gave him "good" ideas on what to do with his existing equity and the property. Pretty basic things like building an ADU in the back which we got quoted for $100k and he then can live in that since he is single. Rent out the front house for about $4800.

The $100k will be loaned from a family member of his and repaid once we refinance. Once the front home is rented for a couple of months we will explore a cash-out refinance. My plan is to refinance for $720k, pay off the $320k mortgage, the $100k loan for the ADU and have the remaining $300k to invest into a new property.

$200k would be put down for approx for a $1M home, $100k towards another ADU in the back. We will only be buying a property that can sustain at least a 400 sqft ADU, but ideally, we would like to go upwards to be able to hold a 1000 sqft ADU.

*btw these numbers are very close to actual numbers just rounded for ease.

** also note that I understand there are hidden fees and do intend to scale everything back for us to have at least $50k at all times during this process in case of emergencies. We also do have our own individual savings well into the 6 digits so we aren't too worried of an unexpected repair, but we do hope to not have to inject personal capital and simply use this one home and its equity to invest together.

So my questions to all of you are:

- what is the best way to document my 5%? I would prefer there be no taxable event and unsure if this is a gift or in a way earned through my work? Past work of getting rid of the lien, future work in working with contractors, real estate agents, property managers, etc.

- Do I start an LLC for this venture between my friend and me? Finances will be handled by me and rental income will be flowing through a joint account.

- Open to any other general advice! Here to learn.

submitted by /u/DigitalBucks
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source https://www.reddit.com/r/RealEstate/comments/zx5vo9/interesting_way_of_obtaining_ownership_and_brand/
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