How to co-own a primary residence but not live there?

4 Replies

Hello BP community,

I am confident that someone in the BP community will be able to help me with a deal I am considering. My brother (who lives in San Diego) and I (live in Chicago) have partnered on a 2 unit buy-and-hold rental property (consisting of 2 single family houses on the same lot) in San Diego in 2013. We have done pretty well with positive cash flows and were able to do a cash-out refi of about 75% of our original investment.

Here is the proposal:

Purchasing another buy-and-hold duplex in San Diego. My brother would like to live in the smaller unit (1 bed 1 bath) unit andwe rent out the larger one (3 bed 2 baths). This way we could qualify for the lower interest rate and down-payment that a primary residence would afford. We would be equal partners in the venture and my brother would pay rent for this portion. I think this could work in terms of the deed, title and mortgage but I am not sure how we would share the tax deductions. Does anyone have any thoughts or experience co-owning a primary residence but not living in it? Is this a good idea or would you suggest just owning it as an investment property?

Thanks!

David.

If you don live in the property, its not your primary residence.  I would not advise going down that road

Check out the Rich Dad Poor Dad book "Tax Loopholes" by Garrett Sutton to learn other ways...

You get half of the total rent for both units as a half owner. You can subtract from that half of all expenses, including mortgage interest. If the result is negative (a loss) and your personal gross income is low enough, you can subtract the loss from you personal income.

This is no different for you than it would be if it was a regular tenant living there.

For you brother it's going to be a little different, and I'm not sure on that. I don't think he needs to include his own rent in his income, but then he might not be able to subtract any non-mortgage-interest expenses for that unit if not.

For the mortgage, "non-occupant co-borrower" is the magic term you are looking for, @David Dawodu .

Primary residence interest rate pricing will apply, not investment property. It's been a while since I did a non-occupant co-borrower on multi-unit, so be aware that the below paragraphs might be dated/bad info.

Not all lenders will allow it. Some will. Off the top of my head (and I'm risking giving dated/bad info now), FHA will certainly go for it and Freddie Mac will probably go for it. So it'll be lender-specific overlays that are responsible if you call around and start hearing "let me check guidelines" followed the next day by the word "no."

FHA will always have mortgage insurance, but FHA's loan level pricing adjustment for multi-unit is far kinder, so you will get a way better rate. It will not be 3.5% down, however, with a non-occupant co-borrower. 

Thank you all for your advice. I really appreciate it. @Nick Patterson I will read the Rich Dad Poor Dad book "Tax Loopholes" by Garrett Sutton that you mentioned. @Michael D. this situation could bring tax headaches that I would rather avoid but I will have to find out more about this. @Chris M. I'll look into "non-occupant co-borrower" term. Thanks again helping me out everybody. I'll let you know what I found out from my research.

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