Author Topic: Logistics of buying property with other people (not spouse)  (Read 363 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 whoíve done this, but I donít 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 regionís 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.

Youíd need to look into your regionís 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!