Talk me out of going 50/50 on a million dollar house in the Bay Area

[startingout]

You're not crazy. My husband did exactly this, except in another HCOL area. He bought a pricey 2 bedroom, 2 bathroom condo with his best friend. Their agreement was, whoever gets married first buys the other person's share out at the market value. Sounds like you both have family who can bail you out financially if the deal goes awry, which will be a great safety net. As long as you're open to losing out on a bit of money here and there in order to keep your friendship intact, you should be good. Be sure you have your plans for exiting out of the arrangement clarified well in advance. My husband also took a loan from his parents to buy his share of the place, and then a second loan from them to eventually buy his friend out. The property value increased a lot after that transaction, which his friend didn't mind.

The main concern of mine would be you both moving in with your SOs. You two are best friends, but your SOs aren't. If there's a disagreement between one of your SOs and anyone else in the house, will you or your friend be forced to choose sides? If it comes down to it, would you both choose your friendship over your relationships?

[mitchm]

Hi all,

circling back for conclusion! Ended up formally making an offer solo with dad as a co-signer for $1,125,000 with an "appraisal-contingency" clause; just learned this morning that it went for close to $1.3 with no appraisal-contingency clause. 

A little disappointing but it was also pretty intense to go from not being actively shopping and not even really having any idea to what extent dad would be willing to support, to seeing the place, selling him on it, and putting in an offer within 24 hours.

For now I'll be sticking with my humble renting existence and banking/investing 50%+ of my paychecks, but will be in a much better position should I try to test the waters again in the future. Maybe if my landlord does decide to sell I can get in early and try to buy the  house I'm renting (it is technicallya 5bed/3bath but I rent just the front unit, which is a 3/2).

The whole process has been a great learning experience. Thanks again, all, and special thanks to those of you who have DM'd me with more thoughts/assistance!
 

[affordablehousing]

Yeah I feel like more listings are approaching it with "transparent pricing" but there are still a bunch of agents trying for the old days with bidding wars. I would say appraisal contingencies are the least useful right now (as appraisers are idiots on the best of days) and impact the offer quality the most (take a long time to remove) and if anything, you may be able to get away with an inspection contingency, maybe not. But most everything can be fixed in the east bay.

This sounds like a very typical first jump in the water. eventually it will work out and now you have a better calibration what the emotions feel like getting excited about a place, hoping, feeling nervous, and then putting it out there. It can be helpful too to set expecations based on the listing agent. There are several that are notorious for massively underpricing homes for sale.

[mitchm]

Yeah I feel like more listings are approaching it with "transparent pricing" but there are still a bunch of agents trying for the old days with bidding wars. I would say appraisal contingencies are the least useful right now (as appraisers are idiots on the best of days) and impact the offer quality the most (take a long time to remove) and if anything, you may be able to get away with an inspection contingency, maybe not. But most everything can be fixed in the east bay.

This sounds like a very typical first jump in the water. eventually it will work out and now you have a better calibration what the emotions feel like getting excited about a place, hoping, feeling nervous, and then putting it out there. It can be helpful too to set expecations based on the listing agent. There are several that are notorious for massively underpricing homes for sale.

Yep the realtor said right off the bat that it was grossly underpriced, on purpose. Not really sure what the point of that is but hey, I suppose it did provoke someone who wasn't even actively searching to make an offer, so there's that.

"But most everything can be fixed in the east bay." Can you clarify what you mean by this? What about the East Bay would make issues with a home more "fixable" than anywhere else? Or am I misinterpreting?

[Dicey]

Well, that was quite a roller coaster ride! Given that we're mostly still sheltering in place, you managed to come up with a very amusing, even heart-pounding, distraction. You've learned a lot in a very short amount of time and this knowledge will help you make more informed decisions in the future. Great story! Thanks for letting us come along for the thrill ride.

[MrThatsDifferent]

How fortunate to have a parent that has the resources and desire to support you like that. All the best.

[rothwem]

"But most everything can be fixed in the east bay." Can you clarify what you mean by this? What about the East Bay would make issues with a home more "fixable" than anywhere else? Or am I misinterpreting?

I may be reading it wrong, but I think he’s implying that the inspection doesn’t really matter because the homes are so expensive that any repairs are a tiny fraction of the home cost. That’s different than say, rural Ohio, where a foundation problem might be a $5,000-10000 problem on a $100,000 house.

Anyways, I think it’s for the best that you didn’t win the bid. For me, a multiple offer scenario is an attempt to bring emotion into something that should be dominated by numbers.  The saying in real estate is that you make money when you buy, if you overpay, you’re fucked from the start. A bidding war is an invitation to overpay. 

[mozar]

Wow, that's intense. In DC there's a law that a landlord is required to offer the property to the tenants first before putting it on the market. Does Oakland have something like that?

[dragoncar]

Wow, that's intense. In DC there's a law that a landlord is required to offer the property to the tenants first before putting it on the market. Does Oakland have something like that?

I don’t think OP was renting there, and wouldn’t want to pay &1.3 million any way

[Dancin'Dog]

Can someone provide a Zillow link to the place we're talking about?  I'd like to see what $1.3M buys in Oakland.  Around here you get more bathrooms than bedrooms, a 3 car garage, and a boat dock. 

[mozar]

I don’t think OP was renting there, and wouldn’t want to pay &1.3 million any way

OP mentioned they might want to buy the house they are currently living in.

[mitchm]

Can someone provide a Zillow link to the place we're talking about?  I'd like to see what $1.3M buys in Oakland.  Around here you get more bathrooms than bedrooms, a 3 car garage, and a boat dock.

Here it is: https://www.zillow.com/homedetails/550-E-20th-St-Oakland-CA-94606/24760016_zpid/

[rothwem]

Damn. Nice house, but picturing 5 adults living in 1800 square feet seems tight.

Also, maybe this is a California thing, but what’s up with the low tax assessments? $63,000 for an 898k list price?

[MoseyingAlong]

Damn. Nice house, but picturing 5 adults living in 1800 square feet seems tight.

Also, maybe this is a California thing, but what’s up with the low tax assessments? $63,000 for an 898k list price?

The tax is definitely a California thing, specifically Prop 13. It limits the increase in taxes each year after purchase. Which is why so many old time residents hold on to houses way past when they should have sold. Don't want to lose the low taxes.

[dragoncar]

That's a really clean remodel.  No wonder it got attention. 

Damn. Nice house, but picturing 5 adults living in 1800 square feet seems tight.

Also, maybe this is a California thing, but what’s up with the low tax assessments? $63,000 for an 898k list price?

The tax is definitely a California thing, specifically Prop 13. It limits the increase in taxes each year after purchase. Which is why so many old time residents hold on to houses way past when they should have sold. Don't want to lose the low taxes.

To be clear, the new owner is going to pay around $18k/year. 

[Imma]

Damn. Nice house, but picturing 5 adults living in 1800 square feet seems tight.

Also, maybe this is a California thing, but what’s up with the low tax assessments? $63,000 for an 898k list price?

It actually feels quite big to me. But I'm in a big city in Europe, I'm used to living in small spaces. We lived on 800 square ft with a roommate for years and it wasn't an issue. And we're in a climate where outdoor living isn't possible most of the year while I imagine you'd spend a lot of time outdoors in this house. With two completely separate apartments, entrances and outdoor spaces it sounds ideal for what you're trying to achieve. There's a Barbary Lane feel to it! Hopefully you can find something similar at some point in the future.

[BikeFanatic]

That is amazing house. I see why you are tempted.

[mozar]

Wow. Thanks for sharing. Hard to believe that's Oakland. Big changes from 20 years ago.

[partgypsy]

House looks sweet and that 2nd kitchen, understand wanting to go for it. Hopefully the stars will align and you find something that works for you.

[mitchm]

Wow, that's intense. In DC there's a law that a landlord is required to offer the property to the tenants first before putting it on the market. Does Oakland have something like that?

@mozar Not currently but googled around a bit and it looks like the city council is talking about it.

[rothwem]

That's a really clean remodel.  No wonder it got attention. 

Damn. Nice house, but picturing 5 adults living in 1800 square feet seems tight.

Also, maybe this is a California thing, but what’s up with the low tax assessments? $63,000 for an 898k list price?

The tax is definitely a California thing, specifically Prop 13. It limits the increase in taxes each year after purchase. Which is why so many old time residents hold on to houses way past when they should have sold. Don't want to lose the low taxes.

To be clear, the new owner is going to pay around $18k/year.

Ouch.  The Prop 13 thing is interesting though, I never knew that's how it worked. 

[Dicey]

Hey @mitchm, did you see that PG&E is planning to move from SF to Oakland? That should keep the upward pressure on OAK real estate for the foreseeable future.

[researcher1]

circling back for conclusion! Ended up formally making an offer solo with dad as a co-signer for $1,125,000

Dude, you dodged a bullet.  Consider yourself lucky.

No one making $50K/year should be buying a $1M+ house.  Period.

And you're putting your dad in a bad position, relying on him to put up funds for this pipe dream.
Unless he is independently wealthy and gifting your these funds (which doesn't appear to be the case), then you shouldn't take this loan from daddy.
You can't afford this house.  Your dad will be forced to bail you out even further if you lose your job, need big $$ for a maintenance/repair item, insurance costs skyrocket, ect.

[mitchm]

Hey @mitchm, did you see that PG&E is planning to move from SF to Oakland? That should keep the upward pressure on OAK real estate for the foreseeable future.

Hmm no I didn't. That's a bummer of sorts from the potential home-buying perspective! Their HQ will be right near me, too. Walking distance for the execs!

[mitchm]

circling back for conclusion! Ended up formally making an offer solo with dad as a co-signer for $1,125,000

Dude, you dodged a bullet.  Consider yourself lucky.

No one making $50K/year should be buying a $1M+ house.  Period.

And you're putting your dad in a bad position, relying on him to put up funds for this pipe dream.
Unless he is independently wealthy and gifting your these funds (which doesn't appear to be the case), then you shouldn't take this loan from daddy.
You can't afford this house.  Your dad will be forced to bail you out even further if you lose your job, need big $$ for a maintenance/repair item, insurance costs skyrocket, ect.

The down payment assistance, in the end,  would have been a gift. The monthly mortgage plus insurance and taxes (at least at current rates) would have been covered by my contribution plus renting the floor I was not living in.

Potential unexpected maintenance costs were real, however. Another forum member helpfully walked me through some of the potential pitfalls based on close examination of the listing photos.

Will say that my father is not independently wealthy, but he is wealthy. I wouldn't put him or anyone else in my family in a potentially ruinous financial situation. Even if I were to lose my job or meet some other hardship, would always have the option to move out myself and cover the mortgage by renting the whole thing.

Anyhow, perhaps all for the best.

[researcher1]

The monthly mortgage plus insurance and taxes (at least at current rates) would have been covered by my contribution plus renting the floor I was not living in.

So what would you do for those months when you might be between renters?  Or when a renter stops paying rent? 

Experts suggest budgeting 1%-4% of the home value yearly for home maintenance/repairs (likely even more for a multi-unit rental property).  That is $10K - $40K per year.  Where would that come from?

After looking at the listing, I'm also curious where Dicey thinks you would put a tiny home on wheels at.

[affordablehousing]

That's a pretty good house, big and with still a bit of character. But it didn't look too one of a kind to me. Proximity to Lake Merritt is the key and it is hard to find a house that size that close to the lake for that cheap.

I meant by my previous comment that as someone surmised, the housing prices are so high that putting in a few hundred thousand to fix a house up is not a big portion of the home cost in Oakland. The low listing price is meant to get people like you to have it included in their search results, put a low bid in, and make the people that really want the house to compete prematurely for it and put in big offers. That happened across the street from us last month. Keep your eyes peeled for other options!

[Dicey]

Also consider rent-to-own with your landlord.

Are there are ways to transfer ownership so that the tax bill doesn't change?

Lots of good points, Fru-Gal. Those kindly tax folks watch every transaction like a hawk. If a house sells for less than they think it should, they're out to the property in a flash.

One possible way to do this is to build on your excellent rent-to-own suggestion. Many long time owners have way more than $500k equity and they don't want to pay the additional taxes, because, who does? If they are planning to use the proceeds to move into some other kind of housing (instead of letting their heirs sell it after they die, as in OP's example), there are ways to structure deals to further provide a lump sum up front, plus a steady stream of income that could minimize the tax bite. These deals are complicated and hard to find, because they typically require knowledge of the buyer's situation, trust, and good legal advice.

I remember a story about a guy in Monterey, CA who did this. He had a ten year rent-to-own agreement. He bought the house at the end of the ten year term, then turned around and sold it for $1M more than he paid for it. The family was pissed, but his deal with their parents was totally legit. People just have problems visualizing how much property can appreciate and how inflation inflates the price of, well, everything.