Group House Hack - Bad Idea?

Question

Hi,

I'm currently in the process of looking for property to house hack in the Boston area after I graduate college in the spring. Since Boston is such a hot market and prices are much higher than other markets, I was thinking about going in on the house hack together with some friends so we could pool our funds together and put down a larger down payment to get a larger/nicer property.

Beyond the normal concerns of going into business with friends, does this seem like a bad idea? I'm curious as to what others think. We would all be on the same page regarding the exit strategy, and I'm also wondering if logistically it makes the most sense to form an LLC since we'd be combining our assets together.

Thanks for your time,

Michael

Jonathan Bombaci · Answer

You can definitely buy with a friend to make it easier. Real Estate is odd in the sense that partnership tend to be easier since it revolves around a physical asset. I think buying with a friend is a good idea if you can’t do it on your own.

That being said Id avoid putting it in a llc. By putting it in a llc you now are ineligible for the low downpayment loans. Banks will see it as a strict investment property which will require 20-25% downpayment.

Jonathan Bombaci · Answer

As @Llewelyn A. said just buy adequate homeowners insurance with landlord general liability protection and you’ll be fine. If you get paranoid you can throw a million $ umbrella on top of it for a couple hundred dollars a year. All that being said consult an attorney. I have a good One in North Reading if you want to talk to him when the time comes.

Austin Allan · Answer

@michael guay  Both of our names are on the mortgage. This also helped lower our PMI! Both of us had great credit, 800+, and our PMI ended up being $77.50. Pretty low, considering 5% down and a mortgage of roughly $350,000.

We have established what the short-term plan for the property is and we are both in agreement with that and we have a plan to partner up on 2 more houses after this one. We have a good operating agreement in place that makes sense for both of us as well. I am fortunate to have a strong element of trust with my partner. While there are certainly drawbacks to not doing this solo there are also benefits. We can rapidly acquire properites and continue to work towards larger deals together. I personally enjoy working with people/partners so there are less drawbacks for me.

Michael Guay · Answer

Thanks for the insights, Jonathan! I'll definitely avoid forming an LLC in this case, since we'll want to move forward with the 3.5% FHA loan.

Austin Allan · Answer

I think this was directed at me? My partner is active duty and is currently stationed in Germany. We could no do a VA because both of us are in the mortgage and I am not military. We also could not do FHA because both of our names will be on the mortgage but only 1 will be occupying the house. That left us with 5% conventional.

Steve L. · Answer

@Michael Guayo I have a question out of curiosity. Will your partner also be occupying the property with you? If so, why are you guys choosing to go FHA low down vs. VA no down?

Saidah Haye · Answer

@Abel Curiel Thank You, for your solid advice. I appreciate it.

Michael Guay · Answer

This is exactly what I'm planning on doing! Thanks for the insights, Llewelyn.

Michael Guay · Answer

Thanks, Austin! I am curious, are you the only person whose name/credit is used for all loans, paperwork, etc - and your friend simply gave you money to contribute. Also, did you guys sign any sort of agreement between one another, or are you trusting one another? Thanks

Austin Allan · Answer

I'm currently under contract on a house that I am purchasing with a friend. I was going to take me longer than I wanted to have all the cash I needed to purchase alone. In my mind the ability to eliminate my housing costs was worth it. My partner is in the military so he won't be living in the house and we still get 4 bedrooms to rent out.

In my mind, if the plan makes sense and proper protection is offered for everyone go for it. Everyone's first step is a little different.

Group House Hack - Bad Idea?

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