Buying in Los Angeles and partnering with someone

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Buying in Los Angeles and partnering with someone

Zhenya Levchenko
Los Angeles, CA · Member since 2016 · 8 posts · 3 votes

Hello everyone,

I am new to this site and wanted to say hello. My partner and I are looking to move in together (we are currently renting), and due to very expensive rents in Los Angeles, I am considering to buy. I know the timing may not be the best, but I am giving this a thought as it looks like it would be cheaper to buy than to rent a 2 bedroom unit. 

I am looking at 2-4 unit properties in either Northeast LA or Long Beach (because it has no rent control). Is it possible to find a reasonable deal or is it just too competitive? any feedback would be greatly appreciated.

My second question: I don't really have much money saved, but I have a good job and a good credit. A friend of mine offered to give me the down payment (5%+ fees to buy) as long as she becomes a partner on the property. She would take advantage of my ability to buy as a first time home buyer. She wants us to pay mortgage 50/50 and split expenses and income from rent 50/50. I'd be living in one of the units, but she won't be. Does this arrangement sound like a good deal for both of us? How will it affect my ability to buy another property in a few years (she won't be on this loan but I would add her to the deed). My hope is to save money and hopefully move and buy another property in a couple of years... And finally, what type of paperwork/contract do we need to sign?

Thanks so much in advance!

Best,

Zhenya

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Brett Goldsmith
Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
9y

Sounds like you are winning by getting money to get into a home and she is winning by getting into a home without having to get a loan in her name. Just know you hold the liabilities and if things go south, you'd be the one holding the bag. 

5% in LA can be a chunk of change so she has some commitment.

What's the arrangement with the payback of that principle or is that returned upon the sale of the home or does she recoup that first from rent?

Besides that sounds like a decent arrangement with a truly trusted individual. 

Having a loan will increase your back end ratio. Eventually you hit your ceiling and will need to make more money to be able to carry more debt. Also you can only have X many of X type of loans, so you're shooting one of your bullets.

Best of luck,

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  • Brett Goldsmith
    Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
    9y

    Sounds like you are winning by getting money to get into a home and she is winning by getting into a home without having to get a loan in her name. Just know you hold the liabilities and if things go south, you'd be the one holding the bag. 

    5% in LA can be a chunk of change so she has some commitment.

    What's the arrangement with the payback of that principle or is that returned upon the sale of the home or does she recoup that first from rent?

    Besides that sounds like a decent arrangement with a truly trusted individual. 

    Having a loan will increase your back end ratio. Eventually you hit your ceiling and will need to make more money to be able to carry more debt. Also you can only have X many of X type of loans, so you're shooting one of your bullets.

    Best of luck,

    1Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    9y
    Zhenya Levchenko With very little knowledge and a lot of inquiries, I find this personal opinion of mine to be maybe more of the same boat as you. You gain by having your current rent count as a paydown to your property, that's a big plus. Second is, it will improve your debt to income ratio, that is, IF you qualify for a 2-4 unit. Third is, since only 1 unit is occupied and the rest is rented, then obviously the rents from the other units will "add" to your supposed income; ergo, if you move out of that property, your occupied rent will be an income as well, thereby freeing yourself to take on another loan for another property, etc. I suggest you don't pay back the 5% plus fees since you are giving your advantage as first time home buyer also. You can have that money be paid when the property is sold. Now the question is, how will you split the profit at time the property is sold, obviously you are paying your part of the unit, and obviously she won't agree that you'll be living there for free. The 50/50 contribution is easy to say, but when you get to the nickle and dimes, it gets a little tricky. A suggestion arises that on your books (yours and hers), you pay a certain amount of reduced rent (pay yourself for property management as well) so the books will be cleaner.
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  • Ciprian L.
    Real Estate Agent · Burbank, CA · Member since 2012 · 271 posts · 79 votes
    9y

    @Zhenya Levchenko It's going to be almost impossible to find a good deal with 5% down that will cash flow for your friend to get a return for her down payment.

    Did you try to run numbers on some properties that are available on the market?

    If you want to buy something with less than 20% down the plan would be to get a property that needs work and after you remodel it to refinance to get your LTV over 80% to get rid of the PMI and maybe after raising the rents you can have some cash flow. That means that your friend would have to put the 5% for down payment + closing costs + remodel costs.

    It's going to be too complicated with a partner. How do you calculate the rent for the unit that you occupy? Are you going to raise it every year to the market rate and give half of it to your partner?

    I think it would be better to borrow the money from someone and pay it back over the next few years than getting into a very complicated partnership and in the end none of the partners might be happy with their return on the investment.

    I currently own a duplex and live in one of the units, I was thinking of going in the next deal with a partner but I didn't see a scenario that me or my partner would be happy with the returns.

    Good luck!

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  • Rosston Smith
    Investor · Warner Robins, GA · Member since 2015 · 1k+ posts · 490 votes
    9y

    You definitely can find a food deal out there! You just have to keep looking.

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  • Rosston Smith
    Investor · Warner Robins, GA · Member since 2015 · 1k+ posts · 490 votes
    9y

    Also for your first deal since you don't have any money, you have to work with what you have. Even if you don't make anything your first deal at least your foot is in the door.

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  • Rosston Smith
    Investor · Warner Robins, GA · Member since 2015 · 1k+ posts · 490 votes
    9y

    Also welcome to BP!

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  • Bana Haffar
    Real Estate Agent · Los Angeles, CA · Member since 2014 · 11 posts · 9 votes
    9y

    For starters, I would recommend getting pre-qualified for an FHA loan to see what you would qualify for on your own. The type of partnership you are describing with your friend is fine as long as you draw up a formal partnership agreement and clarify how much % ownership each will have, how decisions will be handled, how sale proceeds will be divided etc... It's also OK to add her to the grant deed without having her on the loan, people do that all the time.

    Purchasing an income property with an FHA loan will affect your ability to re-purchase FHA because you can only have one FHA loan at a time and it has to be for your primary residence. The play would be to re-finance the first income property into a conventional loan before getting FHA financing on an second property.

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