First time buyer seeking council

5 Replies

Hello, I'm a first time buyer in KC with enough capital to cover 3.5% or 5% plus closing costs on a single family residence. Currently I'm living in a house with 4 other individuals, all young professionals... We get along great and it's been an overall positive experience. Cheap rent, the owner lives in denver, rarely stops by the house and makes some good coin off us. My goal is to create a similar living environment, but begin to collect rent instead of paying rent. In addition, I have an uncle who is willing to partner up and provide enough capital to put down 20%. With all of this being said, I'm confident in our ability to write a contract that will alleviate any partnership issues down the road. He wants to give some cash and let me run the operations, which I'm very anxious and capable of handling. I'd live in the house, bring a couple of my current roomies and fix it up for a year or two. I'm curious the benefits/negatives of purchasing real estate with a partner, considering I have the first time home buyer option on my side, however would be faced with PMI if I decide to go at it alone. We'd go with a 15 year note, and I'm confident in a break even situation..... However i think I'd go with a 30 year fixed if I go solo. Thoughts?

Thanks,
Chris

I'd go at it with your uncle. Using OPM is what will help you to grow your business.

Originally posted by @Chris Holston :
I'm confident in our ability to write a contract that will alleviate any partnership issues down the road.

My first thought is, you might be confident about this, but don't try it. It's more complicated than you think. Get an attorney to do it for you.

Second, if you're just worries about PMI, if you buy under market and fix up, you can generally refi out of the PMI in a year or 2. That's what I'd do. Partnering with family can create issues.

Adrian, thanks for the response. Perhaps I should have said, confident in ability to have a contract written by a 3rd party.

Can you give a little more detail regarding the PMI excerpt? I don't understand how I can buy under market value, then fix it up (increasing value, decreasing equity as % of value), then refinancing (which I don't want to do bc I'm afraid rates will have risen w/in 2 years)..... If I only put down 3.5% - 5.0%, doesn't PMI stay around until I hit 20% & refinance due to new mortgage restrictions?

If you're uncle isn't dead set on being your business partner, I'd see if he'd be willing to loan you the money with a promissory note detailing the terms. Don't worry about the PMI as @Adrian Tilley pointed out you can refi down the road. I have a friend who did what you're about to do and it worked out great for him. Good luck!

@Chris Holston Talk to a mortgage broker to get specifics, but for my personal residence we put 3.5% down, then refinanced a couple years later when our equity reached 20%. My understanding is that you have to wait 6 months after purchase, and can then refi and they will use a new appraisal for "value" in determining whether the property will be less than 78% LTV. Rising rates does create a problem, but they would have to rise quite a bit to make a huge difference.

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