Years ago I owned a house for a little while. It started out in the 50s as a small two bedroom and then over the years someone finished the attic as a legally conforming bedroom, then finished the basement and put the teeniest bedroom in it. Smallest house with four legal bedrooms I have ever seen.
I rented out the spare bedrooms. I was a landlord. No excuses.
But if I ever found myself in that situation again; How can I ethically share the costs of a house if it has an owner? I couldn't figure it out then. I don't think the situation will ever come up again. But I desperately want some kind of absolution in knowing if I could have done better, and how to implement that if it happens again.
The problem I couldn't figure out was how to give the renters some kind of equity. I didn't have trusted friends I could set up some kind of coop with. Setting up a coop with strangers was very high-risk; I have a severe mental illness and i'm disabled most of the time, so if things went badly I would be in an extremely vulnerable position with few options.
Give me some input. A rich uncle you didn't know you had leaves you a small house with four bedrooms in their will. You can't afford the mortgage without some help. What do you do? How do you work around mortgages and ownership?
I've thought about how one might theoretically do this myself, though I've never been a landlord.
Best idea I was able to come up with was that you set up some LLC whose sole asset is the deed to the house and/or land, with yourself (initially) as the owner of all shares in the LLC. "Rent" is then the purchase of shares in the LLC from you to the tenant(s). Share price is tough to figure out, but I think what you would do is have X number of shares where X = (purchase price of house (i.e. downpayment + initial mortgage value)/total rent being charged). Other costs like property tax, insurance, or maintenance would be paid by all "investors" in the LLC proportional to their fractional ownership, which would be recalculated after every share purchase. Things like utilities would be supplemental to the purchase price of the share as they make more sense to split evenly rather than by share.
What I've described is kind of similar to a tenancy-in-common, but in that case both owners have usually gone in together on a purchase.
What this gives you basically is that you would still have full control of the LLC (and therefore the house) until you'd sold 50%+1 shares. What this gives the tenant is partial ownership. Upon moving out they could either sell all their shares back (presumably to you), or start selling their shares to a new tenant, or keep the shares and receive a proportional return when the property is sold.
It's way more complicated, but more equitable.