Seeking Creative Title Strategy Advice

[Nick Hulme]

Background: My wife and I live in San Jose, California, where we are renting a basement apartment from family for a great discount. Both of us have corporate jobs with decent salaries, so we are saving about half of our income every month after all fixed and variable expenses and we have no plans to move in the foreseeable future. We would like to buy property in a strong market with good appreciation potential and Utah is a place that we are very familiar with (my wife grew up there and I lived there for 6 years). Although Utah is much cheaper than the Bay Area, it isn't the bargain it used to be, so we are looking for creative ways to optimize our rate and reduce our down payment.

Plan: My sister lives in Provo, working as an ICU nurse. She graduated from college a year ago and though she does not plan to stay in Utah long term, she likes her job, she is dating someone, and she has no plans to leave within the next year. She has no interest in real estate investing and she does not want to buy a house for herself. However, she is willing to do us a favor by stepping in and co-borrowing on a loan so that she can live in it as the primary resident. We would be the cosigners with terrific credit scores and a solid DTI. We would also provide the down payment and manage the property so that my sister could simply live in it for a year and pay rent until she decides to move. At that point we would refinance and take complete ownership of the property.

Questions:

1) It is my understanding that in Utah we are allowed to split the title of the property. Ideally, we would divide it 99:1, with my wife and me as the majority owners. Am I wrong in this assumption?

2) Has anyone done something similar to this? Are there any factors we might be missing? What advice would experienced investors offer for our situation.

[Caroline Gerardo]

You want to do an owner occupied loan. Sister is only person who this will be her primary. The title cannot be 99% you with a conventional loan, that indicates this is an investment property and rates and terms are a big difference. I don't know if you can qualify as non occupant co-borrowers together, as we don't know what anyone's income or liabilities are.

I suggest you do a couple things: Write out a plan and agreement between the three of you with the date you plan to refinance and who pays for every penny. Who will pay for repairs, utilities, the payments, and what if you have an insurance claim? What if you get divorced or she gets married? Lose your jobs? Who is the one decisionmaker tie breaker... What if the value goes down? What if one of you dies? The agreement must have a specific date for this exit refinance (what if rates are 13%? you will pay higher non owner rate)... Get a yellow notepad and write it all down to talk about.

Put the title in a Living Trust but do not put the agreement in the Trust. The agreement should be done by an attorney but the Trust can be a simple two page form.

Partnering with family can cause long term emotional stress, if your agreement is written, signed, notarized you will avoid fights, as this is a business arrangement.