Anyone well versed in house-hacking partnerships?

Question

It seems to be a concensus amongst many investors that the most efficient way to make a first move in REI is house-hacking.

I really aim to make this a reality, however I am not able to do the owner occupant myself. I cannot live in one of the units.

I have heard numerous podcasts regarding partnerships, especially with David Greene. He would discuss how many properties he invested in with a partner, where one would take on the legality/mortgage, and he would cover the funds. or vice versa.

Can anyone advise me on how they have done a partnership or known any partnerships that worked well with house-hacking specifically???

What worked best, what worked terribly.Dividing the responsibilities, the cash flow, the equity, etc. I want to be able to present the opportunity with a concrete plan. Not just the deal analysis that illustrates the good deal, but a well planned partnership.

Thank you!

Michele Granata · Answer

Hey Ryan! Thanks for the reply. Yes those 2 ways you listed are what my intentions would be for obtaining the property.Exactly, those are the negotiables and I'm hoping to get some insight from someone on how they laid it out to make sense for both parties!And of course, would absolutely be most beneficial to be owner occupants ourselves. My life circumstances don't line up with it unfortunately. It's multi-factoral, but in example, the areas of NJ that are within the phsycial distance from my own home that I'm comfortable with, offer multi-famiy homes, and are in my purchase price range are not in towns with school systems we love for our daughter, are anywhere near reasonable for my job commute, and are too far from our family who are our trusted and single source of watching our child, etc. Yes, I understand that I only need to reside there for a year, but there are many factors added together that affect that year greatly.

Lawrence Potts · Answer

I think one possible outcome is if the partner that is bringing the financing is being rewarded with equity. Let’s say they are a non-occupant co-signer that is bringing the lendable financing portion of the deal. Maybe you have an agreement that in 5 years they will net 100% of equity when you go to refinance the mortgage into 100% your name. It’s more speculative but that’s one thing to consider. Another is that in 2 years you move out and now you co-own this cashflowing property and you treat it as such. The first two years are spent rehabbing and one partner owner occupies so you both can get into the deal with a low down payment: one person is lendable, one person has the down payment and has the ability to occupy. I’d hire an attorney to draft this up. Even if this thread gets hundreds of success stories, you’re still better off with legal counsel. A legally drafted operating agreement is absolutely necessary.

Hope that helps!

Michele Granata · Answer

I can see your viewpoint, and of course I have thought on this for a bit myself, trying to play out different angles.

I disagree that there is no reward. I believe it's all about how you outline the agreement.

As in example, for me, I would benefit by putting down much less capital for a deposit on a multifamily, but still getting to invest in a multifamily. I benefit by not having another mortgage on my list, for limitation reasons and legality reasons. I get to have someone else do most, if not all of the property management because they are on premise. And additionally, the monthly income from the other occupants gets divided in a fair way so that the partner is not just getting all of it towards their mortgage coverage. The income would be divided in a way that makes sense so that I will be getting an agreed upon cashflow, and they will also be getting a huge relief on their expense, if not additional cashflow also.

They benefit by getting huge living expense relief, without much funding towards the property, if not at all, and ultimately (for both of us) the equity in a property. My husband will basically be our resource for any rehabbing. Plus they only have to live there one year, and whenever they leave. it's back to being a regular multifamily partnerships. With agreement outlined on that status also.

Nicholas L. · Answer

@Ryan Thomson

that's why i think this makes no sense.  the goal of RE investing is to own RE.  gifting funds for someone else to house hack, and then they pay you back...  doesn't get you any ownership.

@Michele Granata

Ryan Thomson · Answer

@Michele Granata I'm curious though, why can't you move in and be the owner occupant yourself? That would be an amazing way for you to do this on your own.

Ryan Thomson · Answer

Hi @Michele Granata I've heard it work a couple ways.

1. You cosign and the other person moves in

2. You provide the downpayment as a "gift" and the other person moves in and qualifies on their own.

Everything is negotiable as it comes to how to work out the details of this deal. Things to consider:

1. equity share

2. cash flow share

3. repayment terms for "gift"

Drew Sygit · Answer

Would only make sense on a 3-4 unit property.

Nicholas L. · Answer

@Michele Granata

I know this isn't the answer you want... but I don't think a house hacking partnership makes any sense for either party.

There isn't enough 'reward' in such a deal for two or more people.  The whole point is for the occupant to reduce their living expenses.  Say you funded the occupant's purchase... they're getting all the benefits.  What would you get?  If you want a return on your funds, just open a savings account.

Anyone well versed in house-hacking partnerships?

Most Popular Reply