How to Structure a Home Purchase with Two Couples Buying

Question

My brother and I and our wives are considering buying a house together in the Tempe, AZ area. My wife and I would be living there seasonally, and my brother and his wife would be living there year-round. It will be their first home purchase, so they're going to be nervous about it. Does anyone have experience doing this? How did you split the downpayment? Did you use a real estate lawyer to structure the ownership and the options for selling the property or for one party to buy out the other? Did everything go smoothly, or did people act like it had never been done before in the history of real estate? Did you use one mortgage from one bank with everyone on the application, or were there two mortgages involved? I expect it would make the seller pretty nervous if there were two mortgages involved... If anyone has any recommendations for good real estate lawyers in the Phoenix, AZ valley, let me know!

Chris Seveney · Answer

@Cory Smith

I don’t recommend this as mentioned in another post - it’s a great idea until things go bad. Have one person buy it and the other person pay rent to the other when they are using it.

Matthew Drouin · Answer

@Cory Smith

If you are buying it as an LLC, all the roles and responsibilities can be ironed out in an operating agreement with the assistance of a real estate attorney.  Make sure to go over all the worst case scenarios that you can think of in the agreement and what the resolution is.

If you are getting conventional owner occupant financing, you won’t be able to apply as an LLC, but you can apply together personally and all be on the deed.

If you have concerns about this looking weird to a seller, you can have the primary users be as buyers on the purchase and sale agreement, they can have their name John Smith or Assigns and then when you hammer things out you can have title company of attorney assign the contract to whatever entity or group you decide.

I guess my final question here is why?  Why are you doing this together?  You could probably keep things a lot more simple by just gifting down payment money rather than being on the deed and responsible for the mortgage.

Dennis Muno · Answer

Hello Cory,

It appears the way forward will be that it will be your brother and his wife's home purchase. You and you wife could help with funds which will be indicated as "gift funds" during the loan application by the loan officer.

However, if you are donating with the idea of also being on title with all four of you as owners, this seems like a "joint ownership" scenario. Depending on the lender/ loan product you may or may not be able to qualify for the loan.

More info I got online about this:

https://www.bankrate.com/mortg...

https://mymortgageinsider.com/...

https://maresmortgage.com/join...

Talk to a lawyer as well as a highly experienced loan officer near you who has done this before. Keep in mind, if you proceed this way, all four of you will need your documents checked and credit pulled to apply and be scrutinized before approval

Tanner Connelly · Answer

Technically, if they have the mortgage on the house, you, as an immediate family member, can gift them a down payment. Otherwise, all four of you can go on the singular loan and work out everything on the backend. Things can get messy fast.

Basit Siddiqi · Answer

I think less variables in a business plan the better.I think you should avoid the idea of living in an area that will also be lived in by the buyers.What if there is resentment by one couple that the other couple is staying at the property more than was originally agreed upon. Or what if one couple stayed at the property during the better time to visit the area?

Colleen F. · Answer

@Cory Smith not sure as an owner of a house in Phoenix you could get a stipend as a travel nurse in Phoenix so that might cause an issue with your plan. You need to talk to a CPA about that.

Joe S. · Answer

It’s not worth destroying your relationships over. Four people trying to call the shots is a road with a lot of 4 foot deep potholes.  I wish somebody would’ve told me that when I first started buying with a family member 20 years ago.

Zach Wain · Answer

I will join the others, if possible I would avoid this scenario.  Too many things can go wrong down the road.  Selling, rehabing, basic maintenance, bills.  What if a divorce happens.  So many things can happen.

But, if you decide this is perfect for you all parties, all 4 of you can be on 1 loan together.  It is actually pretty easy.  All of your income, debts, and credit scores are factored into 1 file.  The loan process is not all that different.

But ownership is very different!

Cassandra Alessio · Answer

I would advice to make sure you do speak with a lawyer but also get everything in writing! It is so important to make sure everything is clearly stated and not one person has an issue with something if something unforeseeably happens. Divorce happens. People become unemployed. Market changes dramatically. Etc. It is important for everyone to come to a clear agreement once you figure out all the mortgage/down payment items. Essentially it is almost like 2 people dating buying a house together I would think. So I would want some type of contract between the two couples if I were in the situation.

I would also talk to your lawyer about possibly maybe purchasing under a corporation or have all names on deeds and only a couple on mortgage. I am not a lawyer so I don't know what would work best in AZ but I would explore all your options!

Even though it might not be as common now, with the prices of homes, I would not be surprised if it starts to become more common. Best of luck!! Keep us posted!

Cory Smith · Answer

Hey guys, thanks for the questions / feedback. Here's my nitty-gritty justification, if you're interested: We have limited capital in a high-interest, high-priced environment. I want to get into RE investing, and my brother wants to get into homeownership, but neither of us can do it alone right now. As prices continue to get higher (which I'm guessing they will), unconventional home ownership and financing is only going to get more common. And, honestly, having an extended family owning a home shouldn't be that big a deal, with most of the risks being basically the same risks that any nuclear family takes when buying a home. All four of us are close, and we're all four educated, licensed professionals with reliable incomes. While this isn't a "real" investment property with tenants, it would give me exposure to leveraged capital appreciation and it would give me a place to make sweat-equity investments other than my own home. And it would do the same for my brother, who like me is pretty handy with a saw. It would put me one step closer to my personal long-term goal of becoming something like a self-employed general contractor, working on my own properties like it's my full-time job. And lately I've felt like all my progress toward this goal has been stifled by prohibitive financing requirements. In the meantime, my wife and I are employed as travel nurses, and Phoenix valley has fantastic opportunities for travel nurse work. Phoenix is also attractive because my wife and I just had our first child, and my retired mother and my brother both live down there, so we'd have good family support for our infant. However, we can't spend more than 6 months per year in one place, or the IRS will require us to pay taxes on our living stipends. It's hard to justify buying a home for just us to use only half the year, and it would be difficult to rent out a house in Phoenix only in the summertime. In summary: It sounds like a crazy idea, but it sure checks a lot of boxes, and it would be a mutually beneficial arrangement for four people who care a lot about each other.

How to Structure a Home Purchase with Two Couples Buying

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