Boulder, CO · Member since 2017 · 4 posts · 1 vote
Hi everyone! We need your help!
We're looking to purchase a 3 bedroom condo in Boulder, Colorado. Seeing as it's very expensive here, we've considered asking my parents to invest in this home as well, and split the ownership. In addition to 50% ownership, they'd also have their own room to stay in whenever visiting.
We've never purchased a home so go easy on me!
Here are the details:
Listing Price: $600K / 3 bed / 3 full bath condo
What I'm considering:
Parents would cover the 25% downpayment ($150K)
My husband and I would immediately put in $60K towards renovations. We would do most of these renovations ourselves.
My husband and I would be responsible for 100% of all maintenance/repairs/renovations for the lifetime of the condo ownership.
We would split the monthly payment (P&I, HOA, Taxes, Insurance) 60% (us) and 40% (my parents).
When we sell the property, their initial down payment investment would be repaid first, and then we split the proceeds 50% / 50%.
Is there a better way to structure this? I want to make sure they see this as a great investment opportunity when we present it to them, so I need all the help/recommendations we can get.
If we purchased the condo tomorrow and the value dropped $100K next week, I would want to ensure that my parents recoup their initial investment of the downpayment, but I'm not sure how to properly word that.
Michael, that's ridiculous and non constructive comments. You are a real estate agent and as such prioritising advertising for the POs business above providing realistic advice.
Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
7y
@Michael Montana the markets you mention as “recession resistant” haven’t been any such thing. Just look at the data from 2008-2011. If any market has been recession resistant it’s been many of the Midwest metro markets that have had overall low volatility. A sustained bull run increases downside potential but it gives many people the illusion of safety.
It's very common in these parts for parents to help out with a starter home, probably more common than not actually, especially if we include simply offering to co-sign on a loan. I mean half the people in this town have large trust funds (not using that in a pejorative way, that's just the way it is here). Much of the Boulder wealth game is rich families getting richer by controlling real estate, so nothing out of the ordinary for your parents to buy you a home. However, having them buy you a condo and then also asking them to make 40% of the payments on it for a potential payday at an undetermined time in the future doesn't scream "Great Investment Opportunity" to me, so framing it that way may not be the way to go as it's more of a huge favor to you than an investment for them. The way it's penciled out now is not something I'd feel comfortable pitching, mostly because I don't think a $600k condo is the best choice. When I think of investment property I think of multifamily buildings, not condos personally. It would make a lot more sense to at least go with a SFH if at all possible (if you shop around a while $600k can still get you a fixer-upper but you might have to look at Gunbarrel/Longmont/Lafayette).
Or what about partnering on a duplex? You and the hubby on one side, managing a STR on the other except for when your parents are in town (this would comply with Boulder's STR laws because you'd live in the property).
With a duplex you wouldn't need to ask the parents to cover 40% of the mortgage on top of making the down payment because you'd pay a chunk of monthly expenses and use the income from the STR side to cover the rest. If you hustle and keep it occupied you might even make enough off the STR to start paying your parents back so they don't have to wait for the exit to recoup their funds. If you put a payment plan in writing and include interest on their money, it starts to resemble an actual investment. You'd be managing and cleaning the unit, washing sheets etc. so not just dead weight in the deal. One thing to keep in mind with this is you have to have a license to run an STR in Boulder, but the fee is nominal, they just don't let people turn homes they don't live in into STR's.
Of course duplexes start around $1M... so it comes back to the overall financial picture and we're not privy to that, so just spit-balling here really but if you can swing it, I think that's a much more solid investment idea than a condo. I guess it all really depends on your family's financials: if $150k is not a life changing sum for your parents, that's one thing, no big deal. If they're the type of people to spend $150k on charity dinner followed by a Lion King performance, sure take the money and might as well ask for a little more for a duplex in order to make it a viable investment. But if they'd be diverting $150k away from their retirement account, paying capital gains taxes on it, tying up money they'd otherwise use for a comfortable retirement, or if it would wreck them financially to lose it, then that's something I'd think real hard about. I'd say if they're wealthy enough to not be effected tremendously by having that money tied up/ potentially lost, then it's a reasonable ask to have them help, but if not I'd be cautious about accepting their money and just look into the L towns or Denver burbs where prices are more reasonable and you can afford something on your own. Or at the very least save up your enough of your own money to at least go 50/50 on the downpayment.
Duplexes can be hard to find but if you get one, pretty darn good chance you'll have great appreciation. Condos also have the assessment issue which could lead to you leaning on your parents for more money to repave the parking lot or something random out of your control down the road, plus HOA fees run $200-500/mo, and condos typically appreciate less than other property types (last few years have been an exception to that rule simply due to anything entry level being in higher demand than other market segments, but I think that will slow dramatically as condo prices are now approaching entry level single family homes).
If a $1M+ Boulder duplex STR strategy is out of the question, I'd recommend going out to Longmont (getting cooler and less stabbier every day). Duplexes there start around $450k or you might even find a triplex or quadplex in the $500-$600k range, rents are in the $1200 range so the other units would cover most of the monthly expenses. Using those units as STRs might even create cashflow, and you'd have a furnished spot that could be made available for the grandparents when they visit (although it won't quite be the St. Julian lol). In terms of appreciation potential I think Longmont is looking really good, but use your own Chrystal ball to speculate on that.
Another option would be for you guys to buy what you can afford on your own, and have your parents buy something nearby that you manage as an STR when they're not there. That would keep things much more simple as their investment would be separate from yours, they can sell whenever they want to and get their money out without making you homeless, etc. but you're still helping them cover their expenses by running the STR. It would have to be outside of Boulder though, as STR's must be partially owner-occupied within the city. You could look in Boulder County (I have friends doing exactly this successfully up Magnolia Rd.), up one of the canyons or up in Lyons (not much inventory at all to choose from there right now though) or even Nederland area if you don't mind crazy wind and crazy hippies (just be aware Ned is considering a total ban on STR's).
A lot of us that have been around here a while got into the market by starting on the edges and working our way in. I house-hacked in Gunbarrel for 5 years, then went up to Nederland for 8 years, and now we're up Sunshine Canyon where it's a little less expensive than being right in town. All of our investments are in Longmont and Denver if that tells you anything. Boulder is not really an investment market per se, but more of an appreciation speculation play as cash flow is nearly impossible to achieve. Pretty safe gamble looking at what Boulder has done in the past, but ultimately a gamble none the less. It's important to understand the difference between an investment and an appreciation play, especially when dealing with other people's money.
Getting your foot in the door here is the hardest part, so you're lucky to have family willing to help. Good luck! Steve
Thanks Kathy. So my husband and I would cover any assessment charges as well as closing costs. If for some terrible reason, we lost our jobs tomorrow and couldn't make our payment, we'd move back to Wisconsin, live in a home we own there, and rent out the condo in Boulder. My parents would take all profits from renting.
And thank you so much Teague for the constructive criticism! I really appreciate the suggested plan and think we could totally make that work. But if the numbers don't add up, we'll definitely just stick with something smaller we can afford on our own. We're not trying to bankrupt ourselves over a space that won't be frequently used! And thanks for the heads up on the HOA. I'll definitely dig in deeper on that to have a better idea of what we'd be getting into. Great advice.
Just one note on this comment: Keep in mind there would be no profit for your parents to keep from renting in this scenario because a $600k condo with $150k down will not cash flow. You'd be looking at ~$3k mortgage payment alone, probably closer to $4k/mo. all in when HOA, maintenance, management, cap ex is all accounted for, while you could probably expect about $2,500 in rent, so you'd be running negative ~$1,500/mo even considering 0% vacancy. A duplex would have a better chance of breaking even when fully rented out, although even a duplex would be tight. At least a duplex would be more liquid than a condo if you needed to offload it in a worst case scenario. Just something to consider as renting a $600k condo wouldn't be a good failsafe in this case it would turn into a big liability for somebody.
Did I mention I have a duplex for sale in Boulder right now? Just kidding lol.
Real Estate Agent · Renton, WA · Member since 2017 · 204 posts · 151 votes
7y
@Brittany H. If your parents are willing to invest with you than they believe in what your doing and also I’m sure they want to see you succeed. Make sure you go through your due diligence and if it pencils out go for it. Happy Investing!!
Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
7y
@Brittany H. This is a bad idea. Your parents can stay in a hotel if they need privacy when they visit you. The other detail is that you co1own it with your parents and then they die, their other heirs, if there are any (siblings) would then co own the house with you. It also gets complicated if your parents die with debts and they own the house you live in.
I would use the 60 grand you have saved plus whatever other money you can save and put down a a down payment on a house you can afford. If you don’t have enough for a down payment then you either have to find a way to lower your current expenses or increase your income until you can save up. Or move somewhere cheaper which you can afford, even it if means relocating to a different state.
Evergreen Park, IL · Member since 2016 · 138 posts · 59 votes
7y
@Brittany H. Have you thought about renting instead? Honestly I think you could put your, and your parents money to work more effectively elsewhere, as opposed to a 600k condo as primary residence. Remember that real estate has waves, and we may not be at the top of this wave yet, but we are certainly closer to the top than the bottom. Maybe renting would give you the flexibility to time it right with your financial situation
Realtor · Denver, CO · Member since 2016 · 499 posts · 129 votes
7y
Hi Brittany, have you looked in to the Boulder Affordable Housing program. You may be able to get a home through their program without assistance. The appreciation is restricted to keep the homes affordable.
They have two different tiers of affordability. Low-income and Medium income I believe.
Interesting math, joe. You forgot about the initial equity. Presumably the 150k would come back from that leaving 152 to split. So 76k gain - the 100k in monthly payments makes it only a 24k loss. If everything goes perfectly. Bad investment for the parents unless it’s just the down payment the maybe it’s decent