All Forum Posts by: Michael S.

Thanks, @Andrew Postell - replying to the 2 separate questions here with a few follow ups.

1) In this case, I am related - but is there a way if I were not?  I'm just confused around whether a 'co-investment' is treated as a 'gift' if the 'co-investor' is not a co-borrower/co-signor.  It doesn't really make sense that it is a gift, but I think where the related person part comes from is 4155.1 5.B.4 (on "Gifts as an Acceptable Source of Funds")?  

1a) The reason I'm pushing on this is, I want to do this with my sister (who will be the primary homebuyer), but I do not want to be on the note, and it appears that FHA will allow this. And I'm wondering if I could also do this for one of her co-workers looking to do the same thing, who isn't related to me.

1b) Is there a better document to read on FHA rules than this 400 page HUD doc??

2) Everything I've read says the same as you re LLC, but I just wanted to clarify. What I'd look to do is have the home held in both the homeowner's name and a single-member LLC (as Tenants in Common). I guess if this isn't possible, maybe one could take advantage of no due-on-sale provisions for FHA to quitclaim deed the 'co-investor' interest into the LLC?

A question on  this section for FHA loans:

I was wondering whether it was possible to contribute part of the down payment to a home (alongside the primary homebuyer who will live there, I will not live there), be on the title, but not be on the note /guarantee the mortgage. This section implies that it's possible for FHA. However, in the borrower source of funds sections, it doesn't really provide for having a non-occupying non-borrower provide funds?

In the same light, if this party has an ownership interest but is not applying for the loan, can that party be an LLC?

Thanks, BP!

Michael

@Aaron Gordy sounds interesting!  Have you ever invested with family - but one of them lived there?  Curious to see how you structured it.

I didn't know about the foundation issues (though we're also not attached to that house whatsoever).  Will clearly have to agree on a diligence process though, that part is loud and clear!

Yep, I can imagine that would suck!!  I want to think if I pre-agreed with her that this is what would happen in XYZ scenario, and explained it's not prudent to live expensively after X months with no job, it would probably be ok?

But is there something you think that would protect me enough to make it worth it?  I'm hanging on the "not highly likely" part, because on the flip side then I'm "highly likely" to make her a lot happier buying her first home.  Something like agreeing to hold X months in a rainy day fund or something that makes "not highly likely" into "really unlikely"?

Re: market value.  Since it'd be floored at cost, I'm probably ok with using Zillow or Redfin estimate.  But I understand that's only because its my sister and not a 3rd party.

@Thomas S. got it there.  I think we'd document how long the 'few months of help' would be, but I see your point.  I'm just trying to see if there's something better than just a gift or a loan without a lien.  Would you feel the same way about using National Family Mortgage, and having their 3rd party service a loan between us?

@Quoc Tran good points on other things to consider.  If you jv'd with someone to invest in a rental home (not family, not to live in, just regular rental), how would you handle exits?  Is there something generally accepted as fair?

@Quoc Tran

Makes sense that this isn't the highest yielding property.  I would argue that I will save on vacancy and property management due to the relationship to the tenant, that might make it look a lot closer to the $1850 on an equivalent basis.  But I'm also will to 'help out' since it's family?

Are you seeing many 1% properties in larger cities?

@Chris T.

Ideally, we both have equity and appreciation, and over time she can buy me out and continue to build.

See where I struggle is, if we didn't do this deal and she rented and her financial situation changed, she would be evicted by the landlord anyway, so I'm trying to create some type of sandbox where we can both win, but we'd address problems fairly going forward.  We need a benevolent arbitrator!

@Chris T. 

On your point on moving parts, AGREED!  I think the splits (which we would document), would look just like the splits of responsibility between landlords/renters.  That is, her negligence, her responsibility, but maintenance, 50/50.  So economically, it could just look like a rental property to a 3rd party.  

On failure to pay, we were thinking we'll try to help her out for a few months, but at the end if we pre-agree that if she doesn't get a job after a few months, she'll move out.  And if we talk about it up front and put it on paper, it should be OK?

The loan could work, as a 2nd lien, but if we did it properly, I believe we'd have trouble qualifying for as good of mortgage rates.  I'd also be less excited about it, given the 7% rental yield was un-levered and I'm willing to punt on (and want exposure to) some home price appreciation?

Sherry - also thinking something similar, but I keep getting stuck on those transaction fees, they're so high!  Would you list with a full-service broker?

Hey BP community!

I’m looking at a funkier opportunity. My sister currently rents in Austin, TX and is saving up to buy there. She’s sent me a few houses in the area, like this one.

We're thinking about co-investing in the house together, where I'd put in 50% of the down payment(we're both going to put in around 20K), we'd both be on the mortgage(20% down, no PMI), and she would pay me 50% of ‘market rent', net of shared expenses. Its a $185K home, with ~$1500/m ‘market rent', so the ~10% gross rental yields are a lot stronger than up around me in NY(~7% net rental yield after property taxes, insurance). I'd give her the option to buy me out at the higher of market value or cost, whenever she wanted.

Would love to get the community’s opinion on something like this. I’m able to help my sister buy her home, but at the same time able to invest in single family without taking vacancy risk or property management costs.

Of course the big issue here is what happens if she stops being able to pay the mortgage/rent, so we’ve pre-agreed, and will document, that if she can’t make the payments/mortgage, she’ll move out into something cheaper and we’ll either rent the house out or sell it (though, I largely trust her). As long as we agree on how to handle these scenarios up front (what else come to mind!) with something fair, does this sound reasonable? Has anyone done anything similar or have some tips?