House hack parnership??

Question

Hey everyone,

I'm curious about some different ways to structure a partnership with a house hack, if I would live there and they would not. In this case, the property would likely not cashflow so what is in the deal for the other partner if there's no cashflow, Equity?

Thanks!

Beth Blankenbicker · Answer

I guess it depends on how and when you plan to pull that equity back out to repay them. Are you house hacking to have a free place to live for the rest of your life or are you house hacking to be able to secure that first deal at a 3.5% downpayment and then move out after the minimum occupancy requirements have been met? If you ask a partner to put up $40k as the down payment on a fourplex, live in it yourself for a year at which point you move out and rent out the fourth space so now it positively cash flows, it would still take a few years of paying down the mortgage to have enough of a cushion to be able to pull out $40k in a HELOC or to do a cash out refi to get them their money back.

Sebastian Roy · Answer

@Lawrence Potts Absolutely! It will definitely be a challenge, but challenges are just opportunities to grow and learn, so I'm all for it!!

Sebastian Roy · Answer

@Lawrence Potts I was able to close on my first house hack last December, and then I quit my w2 job in february. I just got my real estate license last week and am bartending part-time while I grow my real estate business. My point is, for the next property, which I plan to house hack the end of this year, I will either need a partner or seller financing for the next purchase. A more attractive strategy for the partner would be for me to bring 50-100% of the down payment and manage the property. They would take the loan and after I move out, we split cashflow and equity 50-50. Something like that is what I'm thinking, but there are many ways to structure it. Thank you for the feedback!

Hersh Shah · Answer

In this case, its just better to buy a property on your own than bringing in a partner for this. Save up for the 3.5% down and go buy a multifamily. If you don't have the 3.5% down, ask your agent to help you with a few DP assistance programs so even that can be reduced or possibly eliminated depending on the product and price points in your area.

Nicholas Coulter · Answer

@Sebastian Roy Are you going to have a debt partner or an equity partner?

Eliott Elias · Answer

Everythings on the table

You take less equity and live there for free

You Pay rent to a shared bank account you and your partner have to pay off mortgage

Kyle S. · Answer

The partner brings the capital, and you live there a year and manage the property. Then the partner gets his investment back first with the cash flow then you two split the cash flow and any other profit moving forward. That is how I would structure it. Partner could be a co signor or be on the deed 50/50 with you. If done like this don't think it would hit the partners DTI would only hit yours.

Lawrence Potts · Answer

Of course! That’s the unfortunate part of going all in self-employed: we lose the ability to be financeable traditionally for a few years. So I understand where you are coming from. Best of luck! It really depends on what the partner needs in a deal, it’ll differ person to person. But good to brainstorm and think ahead 👍

Lawrence Potts · Answer

This is a great questions! I like the creativity. Here are a few things to consider:

In an owner-occupied situation, you automatically lose cashflow which can be a big incentive for a partner, especially a partner that is bringing in capital. You are asking them to delay return and have their money parked somewhere that isn't liquid that could be parked in a better potential deal. What value are you bringing to the table? Lower down payment? The other value you could be bringing is equity. If you owner occupy for 2 of the recent 5 years, you can defer on capital gains if you sell, therefore saving you money to pay them back? But it seems like you are looking long term since you mentioned you want to live in it for a year and move on to the next property. Run the numbers with a partner and see if it makes sense for them (CoC, ROI, risk tolerance levels, etc). It might be easier to do the deal yourself if you plan on owner occupying. As mentioned earlier, there are a lot of DPA's (down payment assistance) programs and lenders that have 0% down products. I suggest speaking with a lender first before trying to snag a partner in a deal that may not make a lot of sense. Hope that helps!

Sebastian Roy · Answer

Good point on the down payment assistant programs, I haven't looked into them yet although I have taken a first time homebuyer course in order to qualify for a 3% minimum down payment.

House hack parnership??

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