Posted by Mark (SDCA) on September 19, 2006 at 11:41:10:
Yes. This is the same as if an unmarried couple bought a SFR.
Yes, the bank will take everyone’s income etc into consideration on the purchase.
The other questions… down payment, sale after remodel etc are things you should get in writing up front if they are a concern.
BTW… what you are considering is NOT for the faint of heart. It’s basically a partnership. LOT of potential problems here.
GL
Mark
Can both tenants buy the duplex? - Posted by Timothy
Posted by Timothy on September 19, 2006 at 11:28:50:
I am looking for more information on a possible purchase. I have searched the archives and my library, and feel I am perhaps keying the wrong words or something.
I am looking to purchase a duplex for my residence. I would like to buy the property with another couple. They are also looking to make this their residence.
I feel this may be a good way for us both to get out of renting, as well as decrease the cost of owning. I am looking for info on how to structure such an agreement. We certainly would involve an attorney, but I figured i would run it by my favorite group of investors first. I do not want to reinvent the wheel, but don’t want to miss something important, including reasons I might consider not doing this. For instance…
What if the partners remodel then we both sell? Do they get more money?
Does the bank look at everyones income when it comes time to finance? This would definately affect the debt ratios.
What if they have more downpayment than me?
As you can see, I am shooting in dark here. ANY suggestions, or keywords to help seach would be great.
Re: Can both tenants buy the duplex? - Posted by GH
Posted by GH on September 21, 2006 at 13:23:04:
I wouldn’t do it. Every partnership like that I’ve ever heard about, including the one time I tried it, has always wound up with problems. It may seem alluring in the beginning but the potential negatives will outweigh the positives. It’s definitely not worth the headache and hassle.
Partnerships are not easy because of all the potential pitfalls and are especially not good for beginners who don’t know what they don’t know. It’s almost impossible to spell out everthing in advance. Partnerships are best when they are very short term or are kept at arm’s length as a business.
Instead either buy yourself a cheaper place or a condo or a mobile or get a good rent-to-own deal or else save up more downpayment and buy another duplex all by yourself so you can rent out the other half for your own profit and maintain total control of your property, especially one you live in. It may be tougher on you to get started on your investment journey, but the rest of the trip will be a whole lot better.
Re: Can both tenants buy the duplex? - Posted by Don
Posted by Don on September 19, 2006 at 12:33:44:
I’m not a lawyer, but…
Mark’s advice is good. To elaborate just a bit:
There are a number of ways to purchase it. One is as tenants in common (as opposed to joint tenants or tenants in the entirety). That way, individual interests can be sold. But you’d really, really want to have all the details spelled out up front: Who is putting up how much money, conditions under which the partial interest could be sold, procedure if one party wishes to buy out the other…that sort of thing. And it definitely can get messy. For example, in a “regular” (no such thing, really) tenants in common arrangement, one person might put up 60% of the downpayment, the other 40%, and so it might be structured that upon the sale the person putting up 60% gets 60% of the net proceeds. It’s more complicated in a duplex. Another concern/consideration: what if one party doesn’t make their share of the mortgage payment? But it can be done, just so long as everything is laid out up front.
There are other ways to structure the deal. For example, you could use a land trust, and make both parties beneficiaries of the trust. The trust documents would spell out many of the same items mentioned above–determination of value, sale of a portion of the property, etc. It could also offer you more protection in case of a default by the other party. That is, if you’re all co-owners and one defaults on mortgage payments (and the other can’t cover it), you all get foreclosed upon. In a land trust, it could be structured so that you and the other couple are leasing the property (your respective units) from the trust. If one party fails to make their payment on time, they’re evicted as tenants, not foreclosed upon as owners. The deed is held by the trust, and the trust is leasing you your respective units. Someone ultimately will still have to make the payments, but if there’s some reserve fund in the trust, that (and the quickness with which you can evict) can buy you more time.
As for keywords, obviously try “land trust.” Also try “equity share” – a lot of equity sharing arrangements deal with unrelated parties, with one putting up more downpayment, the other paying the mortgage, or other imbalanced arrangements. And also try “tenants in common.”
Good luck.