6 Haggers Lane  /  for the sisters

Three things to clear up first

1
The LLC is its own entity. It is not Mark and Karen, and it is not Paul and Kary. A separate object owns the house, kept apart so the taxes stay clean.
2
This is a long term investment, not a good rental. It loses about $1,000 a month for years. Whoever holds the loan carries that loss. It pays off only through appreciation, likely 15 or more years out.
3
Appreciation is not automatic. Who receives it is set by the structure, not by default. The four scenarios below show how.
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What we are working with

The assumptions

Price about $749,000. Paid with $250,000 cash from Paul and Kary, plus a $500,000 loan Mark and Karen take against the townhouse.
There is not enough cash between us to buy it outright, so the loan is required.
Weak rental. In the best case it loses about $1,000 a month.
The loan stays underwater for roughly 15 to 30 years, until prices catch up.
The townhouse is about $2,000,000 and appreciates steadily. It is the asset to protect.
Renting the townhouse is worth about $360,000 to the estate over the period, and only if Mark and Karen have another place to live.
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Scenario 1 of 4

Do nothing

6 Haggers
Not bought.
The townhouse
Sold in about 5 years to fund a downsize to a smaller home.
Estate rental income
Zero. About $360,000 of estate income is forgone.
The sisters
Lose the townhouse's steady appreciation once it is sold.
Paul & Kary
No change.
The baseline. Available if the family prefers it.
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Scenario 2 of 4

Silent partner

Ownership
Mark and Karen 2/3, Paul and Kary 1/3.
The loan
Carried entirely by Mark and Karen from day one. They need the rental income to service it.
Runs it
Mark and Karen, as the property owners.
Appreciation
Follows ownership. The sisters keep the majority, settled at the end.
Paul & Kary's risk
Opportunity cost of the $250,000 only.
Paul and Kary reject this. They will not owe appreciation as a silent partner.
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Scenario 3 of 4

Pure loan

Ownership
Paul and Kary, outright. Mark and Karen provide a loan only.
The loss
Carried entirely by Paul and Kary, about $1,000 a month.
Appreciation
All to Paul and Kary.
Runs it
Paul and Kary. No obligation to the townhouse.
The sisters
Nothing beyond repayment of the loan.
Paul and Kary decline without guarantees. The sisters get no upside.
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Scenario 4 of 4

Middle ground

Ownership
Variable, set by who absorbs the costs. The sisters end near 1/4.
The loss
Paul and Kary absorb it, as loans to the LLC repaid from townhouse income.
Appreciation
Paul and Kary owe the sisters only on their 1/4, once the loan is repaid and the townhouse is made whole.
The townhouse
Rented, so Mark and Karen receive the rental income.
If it falls
The sisters owe Paul and Kary for the loss.
Workable. Equity is the dial, never zero and never all.
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