Expensive area, buying multifamily with a friend to live in

[Lesley Govan]

Hi,

I have been considering buying a multifamily with a friend to live in. We would live in separate units. I have a some questions.

1. The area is expensive so if we both put down 10% we can get a decent payment a month so both of our living expenses are low but if the numbers don't cash flow should I still do it? I know you can't count on appreciation but it's highly likely.

2. do we put down 20% if we are living in it or try to use as little of our own money as possible? I guess the more money down, more equity right? 

3. if you figure your numbers based on 20% down and refi out after a couple of years to take your money out, you'll be paying a higher mortgage payment because you took your money out? Right? I get confused with the refi...

Any opinions welcome! 

Thanks

[Scott Trench]

Thanks JR! I think that owner-occupying like the way you are doing it is a really smart way to go about getting started in real estate and it's what I did. As for buying with a friend, make sure that you understand your exit strategies and how you'll account for splitting equity and expenses. If you couldn't get started without him, of course having the problem of having to split a large profit is a good problem! But, make sure you aren't setting yourself up for any avoidable headaches and make sure you are both clear, in writing, about expectations and commitments. I think a lot of folks would suggest you chat with a lawyer.

I think you might be able to put down less than 20%. Chat with a lender on that one. It might make sense for you to put down less than 5% with an FHA loan.

I think that if you can offset your living expenses entirely or even just mostly, you are in pretty good shape, assuming you'd want to live in the area for the next couple of years! A reduction in monthly living expense IS positive cash flow in my book.

Your monthly payment (P&I) should remain unchanged if your loan amount stays the same. If you get a larger loan when you refinance, your payment will go up assuming similar interest rates, and the payment will also go up if interest rates increase.