Author Topic: Logistics of buying property with other people (not spouse)  (Read 1434 times)

Cornel_Westside

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Logistics of buying property with other people (not spouse)
« on: October 04, 2018, 08:12:30 PM »
So, this may be an odd question, but with house prices the way they are, it may be something that is important to get a handle on. Here's my situation:

Significant other wants to buy a house. We live in the PNW, and house prices are expensive but not unattainable for us (we both do fine - together we make around 180k). She is thinking of buying in the next few years. Here's the thing though - we're not married. I think the earliest we would be married is 1.5 or 2 years from now. She may want to buy before that. She says that's not a problem - she may want to go in on it with her parents.

My question is basically how do you determine equity with a house split between multiple people? Do you simply do it by how much each party put towards the principal on the mortgage? That seems simple, but maybe overly so. I can imagine wanting more than your share if you put down more of the down payment, as that comes with an up front cost instead of continuing costs. That said, the party paying the mortgage would be putting less towards the principal.

I also am wondering what legal things should potentially be prepared if this does happen. Do all their names go on the deed? What about when we get married? Would we simply say that I don't have any equity in the house in the pre-nup (which I intend to have, and have already discussed with her)?

I've looked online and can't find resources about it. Any information about this would be very helpful. I can imagine there are pitfalls here that I don't know about. For now I'd think equity would simply be split according to how much each party paid to the principal and I'd be excluded from this if I wasn't a part of it.

Cwadda

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Re: Logistics of buying property with other people (not spouse)
« Reply #1 on: October 12, 2018, 09:45:53 AM »
I saw no one had posted any responses to this thread, which is pretty rare around the MMM forums.

It sounds like you have a lot of questions without any definite situation locked into place. Are you asking how the equity would be split between you and your S/O if you were both on the mortgage? Or are you asking how it would be split between S/O and her parents?

If S/O buys a house and you have already agreed to separate finances, etc. then just S/O will be on the deed. If you do get married, then S/O can decide whether she wants both on the deed, or can restructure the ownership rights to include you.

If S/O buys her house with parents (who are in it for a business deal?) then they could set up an LLC to include all parties. If S/O buys house with parents' help, say they lend her $20k, then she will most likely need to explain to the bank where the money came from (gift letter).

onlykelsey

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Re: Logistics of buying property with other people (not spouse)
« Reply #2 on: October 12, 2018, 09:47:27 AM »
I think you also need to think about taxes and who takes any applicable deductions and bears any increases.

Cwadda

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Re: Logistics of buying property with other people (not spouse)
« Reply #3 on: October 12, 2018, 09:50:30 AM »
I think you also need to think about taxes and who takes any applicable deductions and bears any increases.

+1. This will vary if you are single or MFJ. I guess this depends on how you'll do finances if and when you get married. From the original post, it seemed kind of gray area subject at the moment.

joonifloofeefloo

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Re: Logistics of buying property with other people (not spouse)
« Reply #4 on: October 12, 2018, 09:56:51 AM »
I know a number of people who’ve done this, but I don’t know the legal details. A credit union here offers mixer mortgages, with assistance sorting out the details (legal, insurance, etc). https://www.vancity.com/Mortgages/TypesOfMortgages/MixerMortgage/ Of course, the details would differ by region, because any applicable laws would, but maybe you can ask around in your area about programs like these.

joonifloofeefloo

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Re: Logistics of buying property with other people (not spouse)
« Reply #5 on: October 12, 2018, 10:08:31 AM »
From that page, I googled a key phrase and got this, for example: https://www.nolo.com/legal-encyclopedia/preparing-house-co-ownership-agreement.html

englishteacheralex

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Re: Logistics of buying property with other people (not spouse)
« Reply #6 on: October 12, 2018, 10:09:22 AM »
Can she just buy the house herself and then let you pay her rent, as though she were house-hacking? That seems like the simplest way of going about this, and the one least fraught with legal implications in the event that you split up.

To be honest, I don't understand why people buy a house together when they aren't married. You're not willing to marry each other but you are willing to sign a joint contract binding you to a 30 year financial commitment together?

joonifloofeefloo

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Re: Logistics of buying property with other people (not spouse)
« Reply #7 on: October 12, 2018, 10:25:08 AM »
Further to my previous...

Your legal standing with a house you live in with an intimate partner but did not participate in ownership costs for will depend on your region’s laws. In some regions, unmarried cohabitants have the same rights to a split of division as married ones. In some, a prenup or cohab agreement to the contrary can -ironically- make this more true, not less! In some, contributing to the house in other ways can make one legally eligible for a share in assets. In some, no value before cohabitation is split upon end of relationship, but the increase in value from cohab or marriage onward is split. In many, writing a contract that overrides regional laws can be thrown out by the courts.

You’d need to look into your region’s laws.

englishteacheralex, I think one of the complexities is the possibility of gf co-owning with her parents.

FINate

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Re: Logistics of buying property with other people (not spouse)
« Reply #8 on: October 12, 2018, 10:29:30 AM »
Let me start by strongly recommending against.

I speak from personal experience after buying a house with family almost 20 years ago. It seemed like a generous offer at the time, and it did help us get our foot in the property market. However, from the beginning there was confusion about who was responsible for what. Who paid what if we wanted to remodel, and who gets what say in the design decisions. Who pays for repairs, taxes, insurance, and so on. Who decides when it's time to sell, for how much, and how are the proceeds divided.

In our situation the "gentleman's agreement" was that in laws would pay the down payment, we would pay all expenses, and split ownership 50/50. FIL insisted he only wanted to be paid back for the down, yet we weren't even on the deed. I was young and dumb when we set this up, and being new to the family was too "nice" and naive. At some point we realized that we were paying huge amounts yearly, but since were weren't on the deed we were essentially renters and were likely to get screwed (if nothing else, on taxes). So we had to push very hard to get recorded 50% on the deed.

Then, as my career started ramping up I got the sense that my FIL was seeing dollar signs. Didn't know it at the time, but he has a history of starting with good intentions which is later superseded by greed and/or desire to control. So ASAP I insisted on paying back the down in exchange for his quitclaim on the deed (e.g. 100% ownership). As suspected, he started talking about wanting his share of the appreciation even though that wasn't the original agreement. The compromise was to pay back the down along with interest.

This was all hugely stressful and unhealthy for our marriage and our relationship with my in-laws. It also meant we bought more house than we needed way too early, and it meant we ended up in a house we didn't like all that much (FIL wanted his say). Financially we would have been way better off just waiting and buying on our own when the timing was right.

All this happened many years ago. We recently sold the house in question and were extremely thankful to have complete ownership. Was clear from conversations with FIL that it would have been nearly impossible to sell if they were still on the deed. And with the recent run up in prices I think he would have demanded half of the appreciation even though we would have carried all the expenses.

So let me finish with this: If you decided to proceed then make sure everything is divided clearly and is in writing. Think about it this way - do you want to marry into a situation where your spouse has unclear ownership with something as major as a house? Think about 40 years down the road or whenever the parent pass, the mess of siblings demanding their inheritance, a slice of your house even though you've paid all the expenses and have done all the work. And make sure you have a clear exit plan, again in writing. And make sure ownership is recorded on the deed. And have a clear plan for how this is handled if you get married, perhaps with a prenup that phases out over time.

Cwadda

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Re: Logistics of buying property with other people (not spouse)
« Reply #9 on: October 12, 2018, 10:56:07 AM »
I'm glad to see other posters chime in, most with more experience than I have. MMM is a great community!

Cornel_Westside

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Re: Logistics of buying property with other people (not spouse)
« Reply #10 on: October 15, 2018, 04:35:14 PM »
Thanks everyone for your comments.

One thing to note is I never meant co-owning the house with the significant other without marriage. The co-ownership would be between her and her parents, and then later when we would be married, that could complicate things further.
I know a number of people who’ve done this, but I don’t know the legal details. A credit union here offers mixer mortgages, with assistance sorting out the details (legal, insurance, etc). https://www.vancity.com/Mortgages/TypesOfMortgages/MixerMortgage/ Of course, the details would differ by region, because any applicable laws would, but maybe you can ask around in your area about programs like these.
Hmm, interesting. It is concerning to me that they only have 10 year long fixed mortgages. Is it typical to have shorter term mortgages for mixed mortgages, even if they are for a primary residence and not for income?

I think you also need to think about taxes and who takes any applicable deductions and bears any increases.
If we were married filing jointly, but only her name was on the deed, I have no idea how that would go.

Can she just buy the house herself and then let you pay her rent, as though she were house-hacking? That seems like the simplest way of going about this, and the one least fraught with legal implications in the event that you split up.

To be honest, I don't understand why people buy a house together when they aren't married. You're not willing to marry each other but you are willing to sign a joint contract binding you to a 30 year financial commitment together?
This is specifically if she wants to buy a house with her parents before we are married. We will get married, but not soon.

I could definitely pay her rent, but the primary concern is how she would handle the split of equity from co-ownership with her parents, as well as tax and legal implications.

onlykelsey

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Re: Logistics of buying property with other people (not spouse)
« Reply #11 on: October 15, 2018, 05:10:36 PM »
I think you also need to think about taxes and who takes any applicable deductions and bears any increases.
If we were married filing jointly, but only her name was on the deed, I have no idea how that would go.
I know this one! I bought an apartment pre-husband and have my name on deed and mortgage.   We're MFJ so it all gets rolled in to one bucket (ie we have one homestead exemption, interest (used to) count towards our deduction, etc.  the IRS treats it all as one bucket.  Unless my accountant has been messing things up for three years...

joonifloofeefloo

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Re: Logistics of buying property with other people (not spouse)
« Reply #12 on: October 15, 2018, 06:09:47 PM »
Hmm, interesting. It is concerning to me that they only have 10 year long fixed mortgages. Is it typical to have shorter term mortgages for mixed mortgages, even if they are for a primary residence and not for income?

This example is in Canada, and Canada has short periods for rates (which makes our mortgage situations highly vulnerable, in a way they're not for people in the US). I just wanted to point you more to the concept of official arrangements -bank approval; legal documentation; support to develop an agreement- for this option, in case you can find the equivalent option where you are.

clifp

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Re: Logistics of buying property with other people (not spouse)
« Reply #13 on: October 15, 2018, 06:13:07 PM »
I have a fair amount of experience in this subject. I bought house with a friend out of college, many years later I bought a house with a girlfriend with the eventual intent of getting married (we didn't).  My mom and her SO bought a house, using the contract, my girlfriend and I developed.  Recently, I bought rental properties with a friend, in this case we formed an LLC.

The Nolo press link is very good starting place to think about all the possible issue.  You really need to plan for the worse.  She and her parents become estranged and you two end up wanting to kill each other.  Then get everything in down in writing I'd highly recommend using a lawyer but maybe you can start with a NoLo press document and modify it.  But absolutely make sure everything is written down, signed and notarized.

I think the key to making it work is to get comfortable with the parties loan money to each other at reasonable interest rates say 6%.  This will require some internal bookkeeping on monthly basis, but as long as you don't combined take a bigger interest or tax deduction than you are entitled to the IRS doesn't realyl care how you divvy it up.

In most case parents, are happy to loan money to their children for a downpayment.  So just have her pay interest to her parents on the down payment. If they want to share in the equity that's more complicated but also doable. So for example if the parent put $100K toward a $500K property she'd owed them $500/month.  If they wanted equity they would be responsible for 20% of the mortgage (roughly $400/month) taxes, and insurance and they could settle the difference on a monthly basis.

What's confusing is are you planning on moving in with her at the start or coming along later? If it is at the start, we didn't have any issues with applying for the mortgage jointly and holding the property as tenants in common.




electriceagle

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Re: Logistics of buying property with other people (not spouse)
« Reply #14 on: October 16, 2018, 05:32:41 AM »
Thousands (millions?) of people do this with strangers using a formal structure called a Tenancy in Common.

They typically share use of an apartment building, but theres no reason that you couldn't do it with a house.

https://andysirkin.com/tenancy-in-common-tic/general-information/clear-answers-and-explanations/

Megma

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Re: Logistics of buying property with other people (not spouse)
« Reply #15 on: October 18, 2018, 08:06:31 AM »
I would not do this. It will very likely get really complicated and lead to hurt feelings. Even if you write everything up in a very clear manner that doesn't mean everyone will be happy with the arrangement down the line. Maybe the parents now are perfectly happy to say they won’t take any appreciation but what happens 10 years down the line when the property has doubled in value? What if they have a change in financial circumstance and later could really use the money? Maybe your future wife will want to share some appreciation with them and you won’t. There are so many ways this can go badly. You might have everything clear and legal but that doesn’t mean the relationship won’t be damaged by hurt feelings.

clifp

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Re: Logistics of buying property with other people (not spouse)
« Reply #16 on: October 20, 2018, 02:53:37 PM »
I would not do this. It will very likely get really complicated and lead to hurt feelings. Even if you write everything up in a very clear manner that doesn't mean everyone will be happy with the arrangement down the line. Maybe the parents now are perfectly happy to say they won’t take any appreciation but what happens 10 years down the line when the property has doubled in value? What if they have a change in financial circumstance and later could really use the money? Maybe your future wife will want to share some appreciation with them and you won’t. There are so many ways this can go badly. You might have everything clear and legal but that doesn’t mean the relationship won’t be damaged by hurt feelings.

There are certainly risks, but in all my situations the split has been amicable, in large part because having a written agreement made the process much easier.  If you end up splitting up with your girlfriend it is unlikely that owning a house jointly will be a major cause.  There are definitive financial and lifestyle benefits to being a homeowner, in many places in the country it's really hard to do so without some type of partnership.


Megma

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Re: Logistics of buying property with other people (not spouse)
« Reply #17 on: October 26, 2018, 01:48:08 PM »
I would not do this. It will very likely get really complicated and lead to hurt feelings. Even if you write everything up in a very clear manner that doesn't mean everyone will be happy with the arrangement down the line. Maybe the parents now are perfectly happy to say they won’t take any appreciation but what happens 10 years down the line when the property has doubled in value? What if they have a change in financial circumstance and later could really use the money? Maybe your future wife will want to share some appreciation with them and you won’t. There are so many ways this can go badly. You might have everything clear and legal but that doesn’t mean the relationship won’t be damaged by hurt feelings.


There are certainly risks, but in all my situations the split has been amicable, in large part because having a written agreement made the process much easier.  If you end up splitting up with your girlfriend it is unlikely that owning a house jointly will be a major cause.  There are definitive financial and lifestyle benefits to being a homeowner, in many places in the country it's really hard to do so without some type of partnership.

I was more referring to damaging the relationship she has with her parents, than his with his GF. I wouldn't worry about them breaking up, he could just walk away as he won't have any ownership but if the parents financial situation changed and the house was suddenly worth much more, they might have agreed to not taking any appreciation in the beginning and later feel like they are entitled to some. Or any of another thousand possibilities that could lead to resentment and hurt feelings.

Penelope Vandergast

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Re: Logistics of buying property with other people (not spouse)
« Reply #18 on: November 07, 2018, 03:06:50 PM »
I think the answer to this sort of thing is always "it depends." If it works I think it can be a great thing. If it doesn't work it can be a nightmare.

To help make it great and not horrible, I agree 1000% that everything should be spelled out beforehand clearly in writing so that everyone is clear on all aspects of the transaction -- it should NOT be an informal agreement. This is a major business/financial transaction and should be treated as such. Your GF should get an excellent local real estate lawyer who can help her and her parents sort out ownership, including who gets the property if someone dies. For instance if she has siblings, how does that affect the property if her parents pass? As someone said, they could also set up an LLC or a trust to buy the property -- and then each owner owns shares in that trust or LLC. This can also help make things more objective and less emotional. But a good real estate lawyer would be my first stop.

Everyone involved might also discuss under what circumstances they would say "oh never mind, this is too much of a pain -- let's just sell it." You might have a 30-year mortgage, but it is extremely common to sell before the 30 years is over.

isaakthepirate

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Re: Logistics of buying property with other people (not spouse)
« Reply #19 on: November 17, 2018, 06:28:25 PM »
I think this can work if you plan for the worst, and prepare in writing. My SO and I aren't married and don't want to be ever, but co-own an investment property. We wrote everything out very clearly, starting with the NOLO guide mentioned and editing for our specifics.

I'm investigating this opportunity again with co-buying a duplex with friends. I'm willing to do it because we're all totally upfront, unsentimental, and have written plans for worst-case scenarios. But even so, it could get ugly, I'm just willing to take the risk.

One thing to consider is if you buy out a party, you need to plan for A) rates being higher than when you purchased, could be in-opportune time to refinance someone off a loan and B) you may not have the capital to buy someone out even if you want to.