does three guys buying a house as an investment make sense?

DanDurusky · **Joined:** Sun Apr 10, 2005 7:31 pm **Posts:** 686

PJ and another guy and myself currently rent a house and our lease will be up in a few months. we got to thinking about buying a house together, living there a year or two enjoying the tax benefits, and then going out seperate ways, etc and renting it out or selling it (hopefully for a profit) if we had to.

does this make any sense? are the benefits divided by three even worthwhile?

i thought i would call upon the wisdom of the village elders on this one

Michael Westerfield · **Posted:** Fri Nov 18, 2005 12:01 pm

DanDurusky wrote:

PJ and another guy and myself currently rent a house and our lease will be up in a few months. we got to thinking about buying a house together, living there a year or two enjoying the tax benefits, and then going out seperate ways, etc and renting it out or selling it (hopefully for a profit) if we had to.

does this make any sense? are the benefits divided by three even worthwhile?

i thought i would call upon the wisdom of the village elders on this one

I would guess no. You won't accumulate any equity in that time (unless you sell the house for more than you paid). Also not sure how you would go about splitting the tax benefit. Finally you will probably have to come up with some money for closing costs that would cancel out the tax benefit most likely.

my 2 cents...

if you stay more than two years... maybe

Adam Ligon · **Posted:** Fri Nov 18, 2005 12:22 pm

Buying always makes more sense than renting, always.

Your issue is trying to do it with multiple unrelated owners. Not only would that be vey hard to get a bank to write a mortgage on, but could lead to all kinds of giant entanglements should any of you become unhappy with one of the others.

Don't mix money and friends, especially on this scale

Carl Fisher · **Posted:** Fri Nov 18, 2005 12:31 pm

I agree with Michael that it could be difficult to come out ahead if you only plan to stay a year or 2. But there are some advantages, particularly if at least one of you is willing and able to keep track of the finances. First of all, the space required by 3 people isn't proportionally more than the space required by one, so you can buy a (proportionally) smaller (read: cheaper) house. Utilities, even food, have the same advantage. Further, if you each have some resources to put into a downpayment, what you're able to put together between the 3 of you might actually be a decent amount (maybe not, just raising the point), which could let you avoid PMI, lower your payments, and give you some immediate equity.

Back when I lived in NH, I co-owned a big house with seven high-school friends. Seven names on the deed. It took a bit of calling around to find someone willing to give us a mortgage, but the numbers were really good. Pooling our money, we were able to put 30+% down, and our monthly payment (including escrowed taxes) was (I believe) $1200, which was a pretty sweet deal divided 8 ways (we had another friend renting as well).

If you do go ahead with the idea, one thing I would recommend you do is work out an agreement beforehand among you on how things will work. Primarilly I mean in terms of money (bills, taxes, how the profit/loss will be handled from the sale, and what you'll do if 1 person wants to move out early), but you can include other issues too.

Contact me offline if you want to know more.

DanDurusky · **Joined:** Sun Apr 10, 2005 7:31 pm **Posts:** 686

isnt staying a year or two different than owning a year or two? assuming we can find renters when we move out.

id agree buying for 2 years would probably be a waste of time, but if we lived there 1 or 2, but then were able to rent it indefinately, wouldnt that be great? of course id have to be able to budget my own future mortgage plus 1/3 of this additional mortgage incase we had couldnt find renters for a bit, etc..

is there a viable renters market out there? now that interest rates are rising.. did we miss the boat? it just seems like as long as we had renters its a win win situation. but i dunno.

what are the pros/cons of going w/ a rental management company?

this is pretty speculative at the moment, but before we throw away more money renting we thought wed look into this.

Vincent Keene · **Posted:** Fri Nov 18, 2005 12:52 pm

DanDurusky wrote:

is there a viable renters market out there? now that interest rates are rising.. did we miss the boat? it just seems like as long as we had renters its a win win situation. but i dunno.

Talk to Mitch Moore about this tomorrow at the Rally-X. He and his wife manage rental properties full time now that he is retired.

Bernie Baake · **Posted:** Fri Nov 18, 2005 12:58 pm

Dan, your idea is sound, however the hope of financial gain in two years is overly optimistic, but not impossible, it happens every now and then. More then than now!!! But consider this, every red cent of rent is gone forever, no tax advantage, no return on investment , no nothing..
If you can work out an agreement between yourselves and rent the house after you no longer want to live together then you've got the start of an investment. If you all want to sell after two years or so. All you've lost is the interest, and closing costs (assuming you keep the place up, and sell for the same price you purchased the home for) and those are tax deductable. The Only way you loose is if you have an internal dispute thats turned ugly or if you wreck the place!!!
Bernie

David Spratte · **Posted:** Fri Nov 18, 2005 1:22 pm

I'd just worry about how you'd swing the tax incentives without a formal partnership? Can three individuals divide up the interest they pay and claim it?

If you can't then you have to go the partnership route which isn't bad, but then life gets complicated. (Commercial mortgages, etc.)

steve remchak · **Posted:** Fri Nov 18, 2005 1:27 pm

Adam Ligon wrote:

Your issue is trying to do it with multiple unrelated owners.

what does the state of NC call this? life partners? significant brothers?

sorry, not helpful at all.

Diane Hall · **Posted:** Fri Nov 18, 2005 1:38 pm

Bernie Baake wrote:

All you've lost is the interest, and closing costs (assuming you keep the place up, and sell for the same price you purchased the home for) and those are tax deductable.

What about realtor fees, assuming one chooses to use one, or initially chooses not to, but it won't sell without being in the MLS system? FSBO vs RE is going to depend a lot on where the property is and how fast it's moving at the time you want to sell. I would remember the 6% (I think that's what it was in NC) that you give your RE after the house is sold and include that in "costs". If you sell it yourselves, then all the better, but you don't want to take a "loss" because you didn't think about the RE fees.

MikeWhitney · **Joined:** Wed Aug 20, 2003 9:15 pm **Posts:** 4724

Adam Ligon wrote:

Buying always makes more sense than renting, always.

You know, I used to beat that drum too, but I think there is one situation where renting makes a lot more sense -- in "hot" markets around the country, people are buying houses simply as appreciation investments expecting to flip them after a few years and make a killing. In these markets, the prices are usually out of reach of first-time home buyers, but all these investment buyers create a flood of rentals and thus relatively low rental prices, many not caring that the rental income doesn't cover their mortgages. ie, cheaper to rent than buy. I bet that't the case around DC and in parts of CA, but I agree that here in Raleigh it's not happening at that level.