Buying a house with my college age daughter
My 19 year old daughter and I are buying a house together for her to live in while in college. She spent the first year of college at home and she has done very well. In addition to being a strong student, she works hard with side jobs earning about $7,000 in 2019. We co-signed to loan. By buying the house together we are able to get an owner-occupied loan which saved about 3% points over the interest rate I could get as an investor. We are locked in at 3.125%, 30 year fixed loan. I am putting 10% down. As an owner occupied deal, the property taxes will by 66% lower than they would be as an investment property. We would have to pay about $500/month to put her in a crummy dorm room or other on-campus housing. Instead way we are using our money to build some equity and possibly get some appreciation to boot. We will be renting out the extra bedroom to a friend of hers for $500 per month. In 3-4 years, my daughter will move on and we will convert the house into another rental property in a our small portfolio. This will be a decent deal after accounting for vacancy, property management, repairs, and cap ex; not a home run, but a solid single. I am glad to be able to lock down a 200K asset at these historically low rates for 30 years. And she gets a new, safe, and convenient house to live in while in school.
My question is about how to treat my daughter in this deal. She is on the note and mortgage which I co-signed, but she is bringing little to the table. We plan on holding the property long term and leaving our rental houses to our kids when we die so that they can enjoy the step up in cost basis. She has enough cash to put at least $2,000 into the deal which is about 1% of the purchase price or 10% of the down payment. Should we give her 1% of the equity pay-down each month? Should we give her 1% of the cash flow that it generates once we convert it to a rental after she moves out? Or does she deserve 50% of the equity pay down, appreciation, and cash flow. I do not think we will be able to depreciate the house while she lives there. How do we split depreciation with her once she moves out and it becomes a rental? She is still listed as a dependent on our tax return but in 3 years when she is done with college she may not be. Any suggestions on how to structure this deal with her would be appreciated.