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Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 9:30 am
by PaulF
My wife and I are about 2 years away from an early retirement. At that time, we plan to snowbird in Florida. I would describe our plan as living in Florida (~8 mos/yr), and visiting Wisconsin in the summer. We would likely not own any property in Wisconsin.

A very good friend, with whom we have cohabited in the past and would be happy to do so again in the future, is planning to move to Florida to work. She is not financially well off, and will be working for 10+ more years.

We struck up the idea of buying a condo together. The idea is that she would live there full-time, and my wife and I would snowbird there. Until my wife and I retire, we would need financing for the condo. (After that, we could choose to pay it off with proceeds from selling our present house, or withdrawals from tax-deferred accounts.) The three of us would split expenses, but, due to our relative financial position, my wife and I would be putting up the downpayment.

To my wife and me, this arrangement has a number of advantages, including establishing a social “beachhead” in a new area, saving by splitting costs, and simply in identifying where it is that we will move to upon retirement.

This plan seemed simple enough, but the devil is in the details. I think we plan to put the three of us on the title, effectively establishing 1/3-1/3-1/3 ownership. But will this fly?

I have no desire or intention to commit ownership fraud or occupancy fraud or the like. However, there are significant insurance and condo-association advantages to a unit being owner-occupied, as opposed to renting it out. There are significant mortgage advantages to a property being considered a second home, rather than an investment property. So, of course, lenders are rightly wary of fishy situations. My wife and I would easily qualify for a mortgage by ourselves. But if the third person is on the title, must they be on the mortgage? Would the complications for such an application be significant? Any thoughts of things I should consider?

Edited to add: I overlooked stating something to address the obvious concern: The amount of money that my wife and I would be putting at risk by putting up the downpayment but not having 100% ownership is very small, < 1% of our investable portfolio, about 0.5% of our net worth.

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 9:48 am
by cheese_breath
Irrespective of whatever financial advantages you might be able to achieve I wouldn't do it. Financial arrangements like this between friends don't always work out as expected, and in addition to splitting the costs might split up the friendship.

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 9:57 am
by CAsage
I think it sound like a decent plan. Assuming of course you really are all good friends, and the place is big enough to allow elbow room (at least a 3 bedroom, to share the square footage somewhat...). Check with a lawyer... but I think you could put the ownership in decimal fractions (and easily account for the down payment by something like 35/35/30 shares) and make sure the title is clear that this is separate ownership (e.g. Friend 30% tenants in common, 35% whatever...). Make sure you work out IN WRITING what your agreements will be going forward for utilities, decorating, furniture expenses, HOA and assessments AND make sure you provide an exit plan. I had an aunt buy into a family cooperative arrangement once... and when she died, the survivors got her equity and her children did not. Just detail it all out, including an agreement to sell, and enjoy the benefits of not needing a house sitter, etc.

I don't think (guess) you would have any difficulty with deducting it as a second home...

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 10:04 am
by a_movable_life
What is your exit strategy? What situations induce a sale? I have been thinking about this with business partnerships as if you want to sell, or they do something illegal and you have to pay them to go away.

"She is not financially well off, and will be working for 10+ more years."

What happens if she can't pay for a few months? Or extensive repairs are needed and she can't pay for her share?

Somewhat better is having them be a tenant but not by much.

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 10:10 am
by 2pedals
I wouldn't do it, what if one of your friends wants to sell out?

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 10:17 am
by unclescrooge
Not sure why your friend needs to be on title, other than your desire to help out a close friend.

If you are providing down payment and financing, and your friend is passing less than fair market rent, I would not put them on title.

Just tell the HOA she is your family and leave it at that.
Tell the lender that you fully intend to occupy the condo as a second home and avoid mentioning your situation.

It's admirable that you want to help a friend in this fashion, but I didn't see any advantage to complicating the paperwork.

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 10:25 am
by Dottie57
Personally ,I would rent it to friend. If she is the survivor of you three, leave it to her via will ot TOD.

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 10:33 am
by ResearchMed
IF there are HOA requirements that do not allow "guests", I'd be VERY careful.
Those rules can be enforced.

But how about declaring her a "live-in housesitter"?
It has the real advantage of being true :happy

We have a housesitter who stays at our house when we are away, and it's terrific.
IF she didn't have an elderly father she ordinarily lives with, we would dearly love for her to just live here in our "guest suite" (a previous owner created it for some teens, complete with full bath and kitchen).
That's where she stays, anyway.

Just don't risk needing to deal with a legal snafu.
See if an attorney can help you write up an agreement that takes this into account.

RM

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 12:01 pm
by Goal33
Buy your own condo and rent out a room.

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 12:07 pm
by DanMahowny
No way. Ever.

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 12:15 pm
by Stinky
money_bunny wrote:
Sat May 18, 2019 10:04 am
What is your exit strategy? What situations induce a sale? I have been thinking about this with business partnerships as if you want to sell, or they do something illegal and you have to pay them to go away.

"She is not financially well off, and will be working for 10+ more years."

What happens if she can't pay for a few months? Or extensive repairs are needed and she can't pay for her share?

Somewhat better is having them be a tenant but not by much.
+1

There are so many things that can tangle this situation up. There’s a small chance it will work out well; there’s a much larger chance that one or both parties will end up very unhappy.

If you share ownership, you’ve effectively created a partnership, so you need to have a formal partnership agreement to protect all parties.

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 12:20 pm
by ChowYunPhat
Have done real estate deals with family before and don't recommend. Everyone's situation is unique however and not all friends are alike.

Personally, I'd buy the condo and charge my friends subsidized rent when they use it. There are benefits to both parties, only one party on the title, repairs and expenses can be decided upon without deliberation, and your friends can still enjoy the property at a reduced rate. No need to complicate this for you, your heirs, and your friends. Take the easy road.

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 1:41 pm
by FIREchief
I would never consider such an arrangement. It sounds like a lot of potential trouble for little good reason.

Also, on a different note, are your really sure you will want to spend 8 months a year in Florida after having lived in Wisconsin? I've never lived in Florida, but visited many times and it can be really hot and humid almost any month of the year. I was there in October one year and it was absolutely miserable. There are also hurricanes. A Florida resident once told me a joke "there are two seasons in Florida, January and HOT."

It could also really complicate your estate planning.

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 1:46 pm
by PaulF
Just wanted to pop in and thank everyone for their input! We will be having a frank discussion tomorrow.

On a small, side note: I overstated the "significant advantages" for the condo association. AFAIK, the only difference is that an owner can have a dog, but a renter cannot. (She does want a dog, but obviously not a determinative factor.)

Re: Splitting a condo purchase with friend?

Posted: Sat May 18, 2019 1:52 pm
by infotrader
ChowYunPhat wrote:
Sat May 18, 2019 12:20 pm
Have done real estate deals with family before and don't recommend. Everyone's situation is unique however and not all friends are alike.

Personally, I'd buy the condo and charge my friends subsidized rent when they use it. There are benefits to both parties, only one party on the title, repairs and expenses can be decided upon without deliberation, and your friends can still enjoy the property at a reduced rate. No need to complicate this for you, your heirs, and your friends. Take the easy road.
I thought this suggestion would have come up much earlier.

Re: Splitting a condo purchase with friend?

Posted: Mon May 20, 2019 8:32 pm
by softwaregeek
Don't mix money and friends. I have done it. Never again.

Business friends? That's different. But Friend-Friend? Never.

Re: Splitting a condo purchase with friend?

Posted: Mon May 20, 2019 8:47 pm
by Sandtrap
PaulF wrote:
Sat May 18, 2019 9:30 am
My wife and I are about 2 years away from an early retirement. At that time, we plan to snowbird in Florida. I would describe our plan as living in Florida (~8 mos/yr), and visiting Wisconsin in the summer. We would likely not own any property in Wisconsin.

A very good friend, with whom we have cohabited in the past and would be happy to do so again in the future, is planning to move to Florida to work. She is not financially well off, and will be working for 10+ more years.

We struck up the idea of buying a condo together. The idea is that she would live there full-time, and my wife and I would snowbird there. Until my wife and I retire, we would need financing for the condo. (After that, we could choose to pay it off with proceeds from selling our present house, or withdrawals from tax-deferred accounts.) The three of us would split expenses, but, due to our relative financial position, my wife and I would be putting up the downpayment.

To my wife and me, this arrangement has a number of advantages, including establishing a social “beachhead” in a new area, saving by splitting costs, and simply in identifying where it is that we will move to upon retirement.

This plan seemed simple enough, but the devil is in the details. I think we plan to put the three of us on the title, effectively establishing 1/3-1/3-1/3 ownership. But will this fly?

I have no desire or intention to commit ownership fraud or occupancy fraud or the like. However, there are significant insurance and condo-association advantages to a unit being owner-occupied, as opposed to renting it out. There are significant mortgage advantages to a property being considered a second home, rather than an investment property. So, of course, lenders are rightly wary of fishy situations. My wife and I would easily qualify for a mortgage by ourselves. But if the third person is on the title, must they be on the mortgage? Would the complications for such an application be significant? Any thoughts of things I should consider?

Edited to add: I overlooked stating something to address the obvious concern: The amount of money that my wife and I would be putting at risk by putting up the downpayment but not having 100% ownership is very small, < 1% of our investable portfolio, about 0.5% of our net worth.
Please correct me if I read this wrong:

1. You are putting up all of the downpayment.
2. You are obtaining a mortgage and financing and all the fees of such including property insurance.
3. You are giving away/sharing "one third" of the ownership/title.
4. The other owner is a friend, not family. (even partnerships with family are not always a good thing)
5. The other legal owner and full time "resident" is not financially well off.

*This does not add up well at any angle.

thoughts:

1. If the 1/3 owner friend is to be 1/3 responsible for the mortgage then they must be able to qualify on their own for this amount . . .and therefore share in the financial and other liability?
If you do this, seek "your own legal counsel" to draft a document protecting yourself from here to Timbuktu. (with a huge "out" clause)

2. What happens to this arrangement if the lady has a boyfriend living in the unit full time? . . . If the lady friend gets married? . . . If the lady friend no longer wants to be part of the arrangement (do you have to buy her out of the 1/3 ownership even if you are footing the bill?)

3. If your friend is considered a "family member", she can live there full time and it is owner-occupied. Just as if your son or daughter or 4rth cousin on your father's cousin's side. You do not have to have that person on the title or on the mortgage. And, if they are "helping you with the costs" via reimbursement VS "rent" then they are not a tenant. (However, if they don't have a lease agreement like a tenant, how do you remove her if something happens? (jus sayin')

4. What happens to this arrangement if you and your spouse "pass away"?

* I would do #3.
Why?
You have full control.
You paid for it. It's "all" yours.
You can sell it at any time or rent it out and do as you wish.
You can take possession of it at any time. (jus' sayin')

ps: I have never mixed money and business with friends or family or even non friends. . . . except once with family (ended very badly, long story :moneybag :moneybag :moneybag :( ) :oops:

Re: Splitting a condo purchase with friend?

Posted: Mon May 20, 2019 8:52 pm
by ohai
Sharing with the friend seems like just an awful idea. Given that the house is such a small portion of your net worth, I have to ask why you wouldn't just pay for all of it and avoid all these weird potential complications.

Re: Splitting a condo purchase with friend?

Posted: Mon May 20, 2019 9:04 pm
by Watty
Just for brainstorming a duplex would be an alternative to consider since she could live in one half and you could live in the other.

Re: Splitting a condo purchase with friend?

Posted: Mon May 20, 2019 9:46 pm
by PaulF
Yeah, most of the negative responses are valid.

It's all off. More for other reasons than for everyone's (valid) concerns. But I am not unhappy that I don't need to resolve these issues.

This arrangement genuinely would have had some upside for us (along with a lot of risk), but it was MOSTLY about trying to help a friend, while at the same time convincing ourselves that it was win-win.

Oh well, we move on. No harm, no foul. I truly thank everyone for their input. I did get some additional ideas for your suggestions, should this arise again in the future. For example, I like the duplex idea.

Thanks!

Re: Splitting a condo purchase with friend?

Posted: Tue May 21, 2019 10:41 am
by stockrex
Don't just say no, just buy a smaller unit and call it a day.