Need opinion on my plan, plus any advice you can offer

[Jason Guaschino]

I live and work in LA and currently pay $2750/month in rent. I have $80k saved up and want to buy a fourplex and live in it so I can stop renting. I have my VA home loan as well. I make a bit over 200k/yr.

My plan is for me and a friend to go in on one together, I’d own 75% and he’d own 25%. We would put 5% down. The ones I’m looking at are between $1M-$1.5M and most have 4 2br/1bath units. In the area I’m looking I could probably rent them out for $2500-$3000/each.

My friend would live in one unit (his 25%) and id live in one unit. Rough estimates put total monthly cost around $9k/month. So each unit would need to pay $2250 to cover it, that’s how much me and my friend will pay, and the $500/month Id be saving on not renting anymore along with the extra rent I bring in from the tenants will all go in a fund to cover emergencies/vacancy/etc (I’d start that fund with $40k put to the side initially)

looking for your opinions, and for context my friend is also my business partner in a business I also own majority ownership, so this wouldn’t be our first contract we’ve written up together, plus my majority ownership makes me feel a safer. Oh and I’m not leaving CA, I have a career here.

[Rick Albert]

Hey Jason,

Glad you want to get into house hacking. That's how I got started.

Regarding buying a fourplex, it looks like in order to get what you want, it would likely need to be 100% vacant, which is challenging in Los Angeles. Rarely do I see 4 plexes on the market where two are vacant and the other two are either also vacant or at market rents. Many have tenants in place. But I have seen ones 100% vacant. Just wanted to give context.

If you go the VA route (thank you for your service), both of you need to be Veterans. Just FYI.

To be honest, why have him with 25% equity and you 75%? Why not just own it 100%? Partnerships can be a lot of work. The MFU market is struggling so you may be able to negotiate your closing costs to be paid by the Seller so you don't necessarily need him to buy it. The only caveat is having money for repairs. If you do go the business partner route, you really need to lay out at least two things:

1. Who is responsible for what? With my business partner, I'm in charge of filling units and managing the buying and selling. He is in charge of back end accounting and operations. 

2. Do you have the same philosophy on how to run the business? Before I got into business with my partner, we ran through scenarios that we have experienced in our own investing and talked through how we would handle it. For example, how do you handle rent increases? How do you handle repairs? Band-aids or full replacements? If you have different ways of handling situations, you can get into arguments down the road. I've seen it happen.

Good luck!