Author Topic: Buying a home for a friend  (Read 889 times)

fetish

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Buying a home for a friend
« on: January 19, 2017, 01:56:26 PM »
Hello all,
I've wanted to own a home (preferably my own) for a while now, but I live in the Bay Area, where even studios in Oakland are selling for 400k. Although I have a good amount of free cash, I can't afford that, and if I could, I wouldn't be satisfied with the value I'm getting, and I suspect the bubble will collapse eventually. Like many of you, I've also thought that rental properties are a good way to "snowball" into more wealth.

What I've been interested in recently is buying a home in another market (in this case, Nashville, TN) and then renting it to a friend who would assume some property management duties. I'd charge them below market rent, make a small profit, and reap the equity. So far so good.

However, I'm not an experienced landlord, and mixing finances with friendships seems like a recipe for loss. What we've discussed is some type of "equity sharing" arrangement so that we're both "invested" in the property and, even should our friendship suffer, we at least share the financial incentives in the property. We've discussed a few options but none of them seem to pencil out, so I'm wondering if any of you have you entered into / know of similar arrangements and could share the details.

Thanks!

ketchup

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Re: Buying a home for a friend
« Reply #1 on: January 19, 2017, 02:01:11 PM »
Does your friend want to be a real estate investor (and know what that entails), or does he just want a place to live?  I'd keep it strictly landlord-tenant with no "equity sharing" if I were you, to keep things way cleaner.

And make sure it's a good friend.  I'm currently renting a house to a friend and it's fine (past roommate, know he's ludicrously responsible with his cash).  Unfortunately, someone being a friend doesn't mean they'd make a good tenant (learned that one too with a different no-longer-family-friend).

SeattleCPA

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Re: Buying a home for a friend
« Reply #2 on: January 19, 2017, 07:11:11 PM »
I think, among other problems, that you create some tax issues by doing a deal with a friend where you're possibly charging a below market rate.

E.g., if you are charging truly a discounted rate, I think that makes the property a mixed use dwelling, doesn't it? And that brings into play the rules of Sec. 280A?

Some of the other CPAs may want to critique this comment...