Personal Residence with Two In Law Suites

8 Replies

Hello All,

I have a few questions about my first potential property that I will be buying and I wanted to pose them here on the forums to seek advice.  My girlfriend and I are looking at buying our first property in the Central Florida/Orlando area.  It is a single family home with two in law suites attached to the property (under the same roof).  We would be living in one of them, and renting out the main area (2/1.5) and the other in law suite (1/1).  Those two units bring in $1100 and $800 respectively and our expenses on the property come out to roughly $1700 including repairs, cap ex, and some vacancy.  We are excited that it works well for us as a primary residence so we can save money (and even cash flow) so we can begin looking into other rental properties to invest in.  My question for you all is whether we should be breaking our back looking for a mortgage company that will forgo mortgage insurance to keep our expenses as low as possible?  Between the two of us, our combined income is only $80k so we are under the $109k threshold to have mortgage insurance still be tax deductible.  We currently have a lender that will allow us to do a 5% down conventional mortgage (we need a low down payment option) without mortgage insurance, but the fees associated with this lender come out to about 2k more than a few others that I have shopped around.  Do you think it would behoove us to pay the additional 2k up front, make this property cash flow roughly $125/month better, but forgo the potential benefit of having that tax deduction (to anyone who responds, I'm not very tax savvy, so please be gentle with your responses to this), or should we keep the mortgage insurance as this tax deduction might be beneficial.  Something else to consider is that if we were to move out of the property, it would be cash flowing close to $400, so will we need this tax deduction when we have it later on as a rental property?

Thanks for your help with this in advance! Feel free to let me know if you need more information, I'll be happy to provide!

Richard

House hacking is awesome.  With a family I can't go around occupying quads or anything anymore, but my 9-yr place does have an in-law suite that helps with expenses and we like it.

I don't think I've ever heard the hiccup of a purchase be the PMI on here before. "Tax deductions" aside, just do a simple cost/benefit analysis. I would spend $2k to reduce long-term expenses $125/mo any day of the week. Didn't even know that was available, so double-check. Usually you either put 20% down or you have PMI. Period.

At the time you move out, you will have to do a tax break-down again as to whether you keep it as a rental or sell it tax-free (minus depreciation recapture).  Selling a primary residence, in general, allows you to have a tax-free gain after occupying 2 years.

Last couple things - buying with someone you're not married to is just a partnership.  Partnerships have more potential for problems.  If you break-up, it will be a legal nightmare.

Try not to get mired down in little tax idiosyncrasies.  The big picture is much more important.  How will this purchase impact your financial future 5, 10, 20 years from now?  Deducting an extra $8 here and there just won't matter :)

Best wishes as you get started @Richard Yount

@steve Vaughan thanks for the good info. I'm wondering why buying with a partner is any more nightmarish if a couple breaks up as it would be buying with a spouse and the couple breaks up.

Originally posted by @Betty Cruz :

@steve Vaughan thanks for the good info. I'm wondering why buying with a partner is any more nightmarish if a couple breaks up as it would be buying with a spouse and the couple breaks up.

Hi Betty. 

If it was treated like a partnership with fair ownership percentages, clear communication, clear expectations and everything was in writing, it wouldn't be any crummier than a normal partnership :)

However, when a couple buys real property and they are just in lovey-dovie land, they don't do any of these things.  It will be all good they think.      "Just get the loan in your name, honey.  I'm still paying off my student loans and my car and my credit card from our trip to Aruba.  I'll help make the payments and I'll work on it, too."   Try getting your time, work and money back on a handshake deal in RE.  It's just gone.    

Married people are covered legally. Community property.  Non-married people are just roommates (or friends) in the eyes of the law.

thanks Steve!

@Steve Vaughan that was a perfect explanation.  I now understand what you meant. Basically structure it like you would with any other partner. Thanks. Good advice.  

"Lovey-Dovie land"???  Now there's a real estate term that I haven't heard @Steve Vaughan !!  

Steve,

Thank you very much for your response.  If you don't mind, I'm going to follow you and Betsy down this rabbit hole.  If you don't mind, I'll skip over the "lovey dovie" details of how absolutely amazing my girlfriend and is and how we have a strong committed relationship that revolves around our communication, and I'll ask how you would recommend we go into this property together?  Say if we were to treat it just like a regular partnership between to non lovey dovie individuals, how would an agreement like that be structured?  I'm assuming we'd hire an attorney to put together paperwork, but do you (or anyone else) happen to the basics of a a real estate partnership would be structured between two equal partners?

Thanks again to everyone for the help!

@Richard Yount , is one of you putting in more money or planning on putting in more time or are you basically splitting it 50/50?

That is how you determine how to structure your partnership. If it's an even-steven venture, split it down the middle. If it isn't, allocate accordingly.

Originally posted by @Richard Yount :

Steve,

Thank you very much for your response.  If you don't mind, I'm going to follow you and Betsy down this rabbit hole.  If you don't mind, I'll skip over the "lovey dovie" details of how absolutely amazing my girlfriend and is and how we have a strong committed relationship that revolves around our communication, and I'll ask how you would recommend we go into this property together?  Say if we were to treat it just like a regular partnership between to non lovey dovie individuals, how would an agreement like that be structured?  I'm assuming we'd hire an attorney to put together paperwork, but do you (or anyone else) happen to the basics of a a real estate partnership would be structured between two equal partners?

Thanks again to everyone for the help!

If it is treated like a partnership with fair ownership percentages, clear communication, clear expectations and everything is in writing, it won't be any crummier than a normal partnership - he says again :)

I would probably buy as TIC (tenants in common) with ownership percentages listed. A simple JV agreement would be good, too.

Lots of other things to consider.  I'm not an attorney. Seek competent legal and tax advice with this stuff! 

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