7 ms·

I strongly recommend, if possible, to have a single homeowner and set everyone else up as renters. The only exception is married couples who already have shared

I strongly recommend, if possible, to have a single homeowner and set everyone else up as renters. The only exception is married couples who already have shared finances. Want to share a house with friends for twenty years and share childcare responsibilities? Great, have them sign an intent-to-lease agreement and take that to the mortgage company to help with qualification. Not having this kind of agreement can lead to all sorts of issues. This should also extend to being jointly and severally liable for paying rent, not just mortgage. What happens when a tenant stops paying? If you've got joint and several liability, you basically have to pay the full amount while being unable to evict the deadbeat for nonpayment (since they're an owner or on the lease). It's slightly better in the case of the lease since you can negotiate a technical default and deadbeat-only eviction with your landlord, but it's still a mess that you should avoid if possible. That all said, living in a house with friends is an excellent choice IMO. I think humans are built to have some non-blood relatives at that level of closeness and cooperation, and it seems good to raise a child with more than two adults that they interact with in their typical household setting.

silverlake 8y ago
In the US 2 single people who jointly own a home can EACH deduct the interest on up to $1m loan. So consider having a legal agreement for joint ownership instead. I’ve done this and deduct an extra $20k.
- jcoplan 8y ago
  What is the basis for saying that two single people can deduct the same interest paid? How could this possibly not be fraud? You are double claiming the interest.
  - silverlake 8y ago
    No. My home loan is well over $2m. If we were married we could only deduct $1m (half the interest). As 2 single people we can deduct the interest up to $2m. It’s a wrinkle in the tax code.
  - dragonwriter 8y ago
    > What is the basis for saying that two single people can deduct the same interest paid? They can't, but the maximum limit on both mortgage interest ($100K) and the indebtedness on which you can deduct interest paid ($1.1 million) apply per-taxpayer for unmarried co-owners. You still can only each deduct what you actually pay. This is a result of a 9th Circuit City decision IRS decided not to appeal that almost certainly want the intent of the law, and was not the way the law was applied prior to the decision. I'm surprised Republicans haven't framed it as a new marriage penalty and jammed a “fix” that would increase the limit for married taxpayers to double the single-taxpayer limit into one of their tax bills, since it would let them champion marriage, rail against the perfidy of the Ninth Circuit, and cut taxes on the rich all at the same time.
- ThrustVectoring 8y ago
  The tradeoff there is that you can no longer depreciate the portion of the house that person lives in. Not sure which is bigger, but being able to effectively push current income into the unrealized capital gains on your home is fairly attractive. On the other hand, you need to be charging market rents with the intent to try to make a profit in order to do this on your taxes, and that means keeping track of rent payments and reporting them. And any profit here could mean that what would otherwise be an untaxed sharing of expenses is now a taxed profit-seeking transaction.
- fwip 8y ago
  If you're buying a $2,000,000 home, you're probably not splitting it with friends to save money.
Johnny555 8y ago
I strongly recommend, if possible, to have a single homeowner and set everyone else up as renters. The only exception is married couples who already have shared finances. Around here, finding the money for a 20% down payment is the biggest impediment to buying a house (it can be hard to scrape up $100K - $200K), so that's easier if you can pool your funds among friends, its easier to do. So that pretty much precludes a rental arrangement. I think it'd be hard to get a loan on a property if the down payment funds are coming from your friends -- and you're treating it as an investment property because you need their rent to afford the mortgage. This kind of arrangement is typically structured as a Tenancy in Common: https://www.investopedia.com/terms/t/tenancy_in_common.asp https://www.investopedia.com/terms/t/tenancy_in_common.asp
- ensignavenger 8y ago
  In the US, most home buyers will qualify for a much lower than 20% down payment for their primary residence.
  - moorhosj 8y ago
    This likely comes with a monthly PMI payment. Correct?
    - ensignavenger 8y ago
      Yes, in most cases.
    - spectrum1234 8y ago
      Do people know situations where its possible to not have PMI with a bit less than 20% down? Ideally they wouldn't increase your rate then. I know SoFi has no PMI with 10% down but I believe rates are slightly higher.
    - mlboss 8y ago
      You can ask lender to drop PMI once 20% downpayment is reached.
  - 8y ago
dragonwriter 8y ago
> I strongly recommend, if possible, to have a single homeowner and set everyone else up as renters. If everyone is contributing to the downpayment and everyone wants to share in the risk/reward of appreciation, than your proposal doesn't work (and if only the first holds, setting all parties but one up as renters is problematic because then either much the downpayment is gifted to them, or exchanged for a claim against the property (and first right to lease is a claim), or it is lent by the “renters”), all of which have problems, including the fact that some are outright disqualifying for some loan programs. Your proposal is exactly the right thing to do when one of the people is supplying the initial capital and everyone wants them to take the sole risk/reward of future market moves. The logistical issues you raise are why you ideally want the group to form a separate legal entity to buy the house, have everyone rent from that entity, and have an appropriate ownership agreement for that entity as well as rental agreements, so that a deadbeat can be both evicted and have their ownership share of the controlling entity bought out; but that's probably an initial and ongoing cost more than you want for the purpose if it's just for a shared home.
sdenton4 8y ago
On the other hand, landlords are not friends. You create a situation where the owner is building equity and the friends are building the owner's equity. I co bought a house with my wife and another couple. We spent about 18 months figuring out the legal agreement, including many permutations on failure to pay. Fwiw, our 'failure to pay' arrangement is in two steps. First step is the generation of interest bearing loans, secured against the non paying owner's equity. (Effectively auto sale of part of the non-paying owner's portion of the house.) Stage two is an actual sale process, which might be owner to owner, or might be dissolving entirely and selling the house. All of this is in our TiC contact. On the flip side, we were able to pay 40% down on an awesome place that we couldn't have done individually, and even the lowest earner is getting significant equity because of the way we've structured our terms. Rent is theft.
- gnicholas 8y ago
  > You create a situation where the owner is building equity and the friends are building the owner's equity. Conversely, if there's an earthquake/fire/mold problem, then the equity holder is on the hook and the renters can just move on.
- chrisseaton 8y ago
  > Rent is theft. Wow that's strong. Do you really believe anyone who offers property for rent at market price is morally equivalent to a conventional thief?
  - jjoonathan 8y ago
    My take on it isn't that strong, but perhaps it will give you an idea where they're coming from. Part of rent pays for goods and services: construction costs, upkeep costs, administration costs, insurance costs, etc. Insofar as it does that, I believe that it is a healthy net-positive economic exchange. Rent also partly goes to pay an individual or company for the service of everyone else staying away from that particular chunk of space. That's the problematic part. See also: banks selling mortgages are financial arms dealers profiting off of exacerbating all of this. The real trick is figuring out what to do about it and how, of course.
fossuser 8y ago
In the Bay Area intent to lease is worthless and not taken into account for mortgage qualifications (I tried it). Your suggestion seems to be to just buy the place and have your friends be roommate tenants? The reason this isn’t viable is the costs are too high. By buying a place together you can get a better place with an affordable mortgage split and you can share in the upside without getting locked out of the market. The risk is the standard social risk plus the risk that if everyone does this prices will get even crazier.
- chii 8y ago
  > if everyone does this prices will get even crazier So not viable after all then. The only solution I see is build higher and denser, and do it so much that it can accommodate the demand growth.
  - fossuser 8y ago
    Yep that’s the real solution - just build a lot more (not “affordable” housing just lots of any housing). Unfortunately between existing owners working to kill any new units and renters in SF claiming that building more increases rent (and vying for rent control which makes things worse) I think it’s just hopeless.
    - tsukikage 8y ago
      ...how on earth do you argue that building more increases rent and sound even vaguely plausible?
      - fossuser 8y ago
        I’m not sure how, but people do (this was my response in a thread from a while back): https://twitter.com/zachalberico/status/1056645172283420672?s=21 https://twitter.com/zachalberico/status/1056645172283420672?...
      - imtringued 8y ago
        Higher land prices mean it is only profitable to build luxury apartments and therefore new construction is more expensive than the average. However what people seem to forget is that each unit of housing means more people can live in the area and eventually the luxury apartments will become average apartments in 30 years.
_AzMoo 8y ago
I've lived with friends a number of times and I would add the qualification that you must ensure you've all got the same desire for cleanliness (or uncleanliness). Resentment will always build if somebody thinks the other is being unreasonable in the level of housework they're willing to take on, and you will end up losing friends.
- TheAceOfHearts 8y ago
  Another option is to pool some money together and hire a maid to regularly come in and clean. It's not that expensive, depending on the size of the house and how many people are living there. I used to have this mental image of a maid being something that only someone incredibly rich would be able to afford, but after looking at prices I realized it wasn't that expensive.
  - _AzMoo 8y ago
    I absolutely recommend a cleaner for anybody that can afford it, but cleaners only clean around stuff, they don't tidy things for you. At least none that I've ever had. If you've got a housemate who leaves their breakfast dishes on the counter on the day your cleaner comes in, that counter won't get cleaned.
wahern 8y ago
I agree that joint ownership is absolutely something to be avoided. But there's also tenancy-in-common (TIC), which provides liability commensurate with your ownership stake. In most places TIC is an antiquated form of ownership usually only seen as the result of intestacy. Banks typically won't issue a mortgage for a TIC title as they're not interested in becoming a tenant-in-common in the case of default, making such titles relatively unmarketable. TIC owners through inheritance almost always liquidate by selling the property as a whole or, in the case of undeveloped land, through partition. But in San Francisco TICs have become common alternatives to condominium conversions with real estate developers. The city caps the number of yearly condominium conversions, but has little ability to control private arrangements like TICs. It's so common that many local banks will issue mortgages for TIC shares, provided the proper contractual arrangements are in place to expedite recovery from deadbeat tenants-in-common. Taking ownership of a TIC share typically involves simultaneous execution of both a title transfer from the seller and contracts with each remaining TIC owner. (These contracts also effectively partition the property, as TIC owners otherwise have a right to access the entirety of the property, including your bedroom.) The contracts tied to TIC arrangements do increase the costs and risks of litigation. If title passes to someone who doesn't enter the shared contract--say by inheritance--then you have a problem. (Presumably TIC contracts attempt to force maintenance of Wills or Trusts to prevent this from occurring.) So while banks here will issue mortgages the property values are discounted. But that means that TIC apartments also typically sell for substantially less than comparable condominiums, which translates to a smaller mortgage, making ownership more affordable. If you see a deal too good to be true in SF, assuming its legitimate it's probably a TIC. Condominiums are designed to simplify this whole process, but in their absence you can hack together a substantially equivalent form. Interestingly, few property lawyers outside San Francisco would think of doing this. My Property Law professor, who was also the professor for my Land Use seminar, was surprised TICs were being used this way. So if you're outside San Francisco it may pay to inquire with an SF-based real estate developer or property attorney.

silverlake 8y ago

In the US 2 single people who jointly own a home can EACH deduct the interest on up to $1m loan. So consider having a legal agreement for joint ownership instead. I’ve done this and deduct an extra $20k.

jcoplan 8y ago
What is the basis for saying that two single people can deduct the same interest paid? How could this possibly not be fraud? You are double claiming the interest.
- silverlake 8y ago
  No. My home loan is well over $2m. If we were married we could only deduct $1m (half the interest). As 2 single people we can deduct the interest up to $2m. It’s a wrinkle in the tax code.
- dragonwriter 8y ago
  > What is the basis for saying that two single people can deduct the same interest paid? They can't, but the maximum limit on both mortgage interest ($100K) and the indebtedness on which you can deduct interest paid ($1.1 million) apply per-taxpayer for unmarried co-owners. You still can only each deduct what you actually pay. This is a result of a 9th Circuit City decision IRS decided not to appeal that almost certainly want the intent of the law, and was not the way the law was applied prior to the decision. I'm surprised Republicans haven't framed it as a new marriage penalty and jammed a “fix” that would increase the limit for married taxpayers to double the single-taxpayer limit into one of their tax bills, since it would let them champion marriage, rail against the perfidy of the Ninth Circuit, and cut taxes on the rich all at the same time.
ThrustVectoring 8y ago
The tradeoff there is that you can no longer depreciate the portion of the house that person lives in. Not sure which is bigger, but being able to effectively push current income into the unrealized capital gains on your home is fairly attractive. On the other hand, you need to be charging market rents with the intent to try to make a profit in order to do this on your taxes, and that means keeping track of rent payments and reporting them. And any profit here could mean that what would otherwise be an untaxed sharing of expenses is now a taxed profit-seeking transaction.
fwip 8y ago
If you're buying a $2,000,000 home, you're probably not splitting it with friends to save money.

Johnny555 8y ago

I strongly recommend, if possible, to have a single homeowner and set everyone else up as renters. The only exception is married couples who already have shared finances. Around here, finding the money for a 20% down payment is the biggest impediment to buying a house (it can be hard to scrape up $100K - $200K), so that's easier if you can pool your funds among friends, its easier to do. So that pretty much precludes a rental arrangement. I think it'd be hard to get a loan on a property if the down payment funds are coming from your friends -- and you're treating it as an investment property because you need their rent to afford the mortgage. This kind of arrangement is typically structured as a Tenancy in Common: https://www.investopedia.com/terms/t/tenancy_in_common.asp https://www.investopedia.com/terms/t/tenancy_in_common.asp

ensignavenger 8y ago
In the US, most home buyers will qualify for a much lower than 20% down payment for their primary residence.
- moorhosj 8y ago
  This likely comes with a monthly PMI payment. Correct?
  - ensignavenger 8y ago
    Yes, in most cases.
  - spectrum1234 8y ago
    Do people know situations where its possible to not have PMI with a bit less than 20% down? Ideally they wouldn't increase your rate then. I know SoFi has no PMI with 10% down but I believe rates are slightly higher.
  - mlboss 8y ago
    You can ask lender to drop PMI once 20% downpayment is reached.
- 8y ago

dragonwriter 8y ago

> I strongly recommend, if possible, to have a single homeowner and set everyone else up as renters. If everyone is contributing to the downpayment and everyone wants to share in the risk/reward of appreciation, than your proposal doesn't work (and if only the first holds, setting all parties but one up as renters is problematic because then either much the downpayment is gifted to them, or exchanged for a claim against the property (and first right to lease is a claim), or it is lent by the “renters”), all of which have problems, including the fact that some are outright disqualifying for some loan programs. Your proposal is exactly the right thing to do when one of the people is supplying the initial capital and everyone wants them to take the sole risk/reward of future market moves. The logistical issues you raise are why you ideally want the group to form a separate legal entity to buy the house, have everyone rent from that entity, and have an appropriate ownership agreement for that entity as well as rental agreements, so that a deadbeat can be both evicted and have their ownership share of the controlling entity bought out; but that's probably an initial and ongoing cost more than you want for the purpose if it's just for a shared home.

sdenton4 8y ago

On the other hand, landlords are not friends. You create a situation where the owner is building equity and the friends are building the owner's equity. I co bought a house with my wife and another couple. We spent about 18 months figuring out the legal agreement, including many permutations on failure to pay. Fwiw, our 'failure to pay' arrangement is in two steps. First step is the generation of interest bearing loans, secured against the non paying owner's equity. (Effectively auto sale of part of the non-paying owner's portion of the house.) Stage two is an actual sale process, which might be owner to owner, or might be dissolving entirely and selling the house. All of this is in our TiC contact. On the flip side, we were able to pay 40% down on an awesome place that we couldn't have done individually, and even the lowest earner is getting significant equity because of the way we've structured our terms. Rent is theft.

gnicholas 8y ago
> You create a situation where the owner is building equity and the friends are building the owner's equity. Conversely, if there's an earthquake/fire/mold problem, then the equity holder is on the hook and the renters can just move on.
chrisseaton 8y ago
> Rent is theft. Wow that's strong. Do you really believe anyone who offers property for rent at market price is morally equivalent to a conventional thief?
- jjoonathan 8y ago
  My take on it isn't that strong, but perhaps it will give you an idea where they're coming from. Part of rent pays for goods and services: construction costs, upkeep costs, administration costs, insurance costs, etc. Insofar as it does that, I believe that it is a healthy net-positive economic exchange. Rent also partly goes to pay an individual or company for the service of everyone else staying away from that particular chunk of space. That's the problematic part. See also: banks selling mortgages are financial arms dealers profiting off of exacerbating all of this. The real trick is figuring out what to do about it and how, of course.

fossuser 8y ago

In the Bay Area intent to lease is worthless and not taken into account for mortgage qualifications (I tried it). Your suggestion seems to be to just buy the place and have your friends be roommate tenants? The reason this isn’t viable is the costs are too high. By buying a place together you can get a better place with an affordable mortgage split and you can share in the upside without getting locked out of the market. The risk is the standard social risk plus the risk that if everyone does this prices will get even crazier.

chii 8y ago
> if everyone does this prices will get even crazier So not viable after all then. The only solution I see is build higher and denser, and do it so much that it can accommodate the demand growth.
- fossuser 8y ago
  Yep that’s the real solution - just build a lot more (not “affordable” housing just lots of any housing). Unfortunately between existing owners working to kill any new units and renters in SF claiming that building more increases rent (and vying for rent control which makes things worse) I think it’s just hopeless.
  - tsukikage 8y ago
    ...how on earth do you argue that building more increases rent and sound even vaguely plausible?
    - fossuser 8y ago
      I’m not sure how, but people do (this was my response in a thread from a while back): https://twitter.com/zachalberico/status/1056645172283420672?s=21 https://twitter.com/zachalberico/status/1056645172283420672?...
    - imtringued 8y ago
      Higher land prices mean it is only profitable to build luxury apartments and therefore new construction is more expensive than the average. However what people seem to forget is that each unit of housing means more people can live in the area and eventually the luxury apartments will become average apartments in 30 years.

_AzMoo 8y ago

I've lived with friends a number of times and I would add the qualification that you must ensure you've all got the same desire for cleanliness (or uncleanliness). Resentment will always build if somebody thinks the other is being unreasonable in the level of housework they're willing to take on, and you will end up losing friends.

TheAceOfHearts 8y ago
Another option is to pool some money together and hire a maid to regularly come in and clean. It's not that expensive, depending on the size of the house and how many people are living there. I used to have this mental image of a maid being something that only someone incredibly rich would be able to afford, but after looking at prices I realized it wasn't that expensive.
- _AzMoo 8y ago
  I absolutely recommend a cleaner for anybody that can afford it, but cleaners only clean around stuff, they don't tidy things for you. At least none that I've ever had. If you've got a housemate who leaves their breakfast dishes on the counter on the day your cleaner comes in, that counter won't get cleaned.

wahern 8y ago

I agree that joint ownership is absolutely something to be avoided. But there's also tenancy-in-common (TIC), which provides liability commensurate with your ownership stake. In most places TIC is an antiquated form of ownership usually only seen as the result of intestacy. Banks typically won't issue a mortgage for a TIC title as they're not interested in becoming a tenant-in-common in the case of default, making such titles relatively unmarketable. TIC owners through inheritance almost always liquidate by selling the property as a whole or, in the case of undeveloped land, through partition. But in San Francisco TICs have become common alternatives to condominium conversions with real estate developers. The city caps the number of yearly condominium conversions, but has little ability to control private arrangements like TICs. It's so common that many local banks will issue mortgages for TIC shares, provided the proper contractual arrangements are in place to expedite recovery from deadbeat tenants-in-common. Taking ownership of a TIC share typically involves simultaneous execution of both a title transfer from the seller and contracts with each remaining TIC owner. (These contracts also effectively partition the property, as TIC owners otherwise have a right to access the entirety of the property, including your bedroom.) The contracts tied to TIC arrangements do increase the costs and risks of litigation. If title passes to someone who doesn't enter the shared contract--say by inheritance--then you have a problem. (Presumably TIC contracts attempt to force maintenance of Wills or Trusts to prevent this from occurring.) So while banks here will issue mortgages the property values are discounted. But that means that TIC apartments also typically sell for substantially less than comparable condominiums, which translates to a smaller mortgage, making ownership more affordable. If you see a deal too good to be true in SF, assuming its legitimate it's probably a TIC. Condominiums are designed to simplify this whole process, but in their absence you can hack together a substantially equivalent form. Interestingly, few property lawyers outside San Francisco would think of doing this. My Property Law professor, who was also the professor for my Land Use seminar, was surprised TICs were being used this way. So if you're outside San Francisco it may pay to inquire with an SF-based real estate developer or property attorney.