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October 6, 2009
Buying 3-Family w/ 2 Others
Any advice/recommendations on how to purchase a 3 family brownstone with 2 other people? There is a garden duplex with a basement and 2 floor through apartments. The purchase price is $1M. My husband and I intend to live in the duplex. Cousin will have one of the units for rental income and another family member will have the third unit to live in. How do we divide up the ownership/costs? Plans are to finance it together...Thanks for the input
Comments
Get a lawyer who can draw up an agreement for Tenancy in Common. Not a terribly common practice in NYC, but not unheard of. A lot of people in SF do this, I have heard. You may have to set up an LLC for the financing. Make sure the legal agreement is ironclad and legally spells out exactly what will happen if/when someone wants to sell their share, sublet, what happens when someone loses their job or gets a job someplace else, what happens when the roof leaks/boiler explodes, what happens if someone wants to buy another person out. There are millions of legal considerations. It has the potential to be a great situation where everyone is happy and amplifies their buying power to get a really great space, and it has the potential to be a legal and emotional morass that will wreck your relationships with one another. So first things first, get a lawyer.
Posted by: Frederick Law Homestead at October 5, 2009 9:10 PM
Search the posts from a couple of weeks ago on TICs. CMU recommended (or has a recommendation) for a lawyer who had handled TICs before to em's satisfaction.
If you set up as LLC, then there's no need for a TIC (as the common rights and duties will be in the LLC agreement) but I don't know how that might impact the types of mortgages available.
Posted by: Boerumresident at October 6, 2009 9:48 AM
Don't buy the property as an LLC as it will severly limit the banks that you can obtain a mortgage from. Buy the property as three individuals and have a separate legal agreement divding the the property into percentage ownership. None of the large residential banks will lend to an LLC on a residential property. TIC is the way to go to hold title.
I don't get why people always insist on holding title as a corporation or LLC. Residential banks will always want you to personaly gurantee the mortgage and will deny the loan if title is held in a corp. The only pro I can see is if you have tenants and one pulls a slip and fall and sues the landlord. Other than that you are giving yourself a lot of hurdles when it comes to financing.
For commercial properties more than 4 units, yes, you need the LLC as commercial lenders will most likely require a corp or LLC
Posted by: Adam Dahill at October 6, 2009 10:35 AM
@Adam - in a TIC, what would happen if one person wishes to move out or no larger be part of the building? Same as a condo? Also in TIC, do the parties usually split common area expenses?
Posted by: guikazoid at October 6, 2009 1:13 PM
Wow, a THIRD TIC post. 3 months ago when I started my own search, I emailed brownstoner to ask if he was interested in an on-going maybe once-a-fortnight update on my "quest", but he did not take me up on it. Might have been useful for you guys.
to answer first above, 1) offer to other(s); 2) sell to new patner 3) sell house and divvy up. Arbitration if no agreement. expenses: yes.
Posted by: cmu at October 6, 2009 1:25 PM
safe to assume best way to divide mortgage amongst the parties would be by square footage?
Posted by: guikazoid at October 6, 2009 1:44 PM
does not matter, it's your private arrangement. if my partner has a 40% stake and 45% square footage, and it's ok with me, it's ok. each partner gets the deductions based on payment.
Posted by: cmu at October 6, 2009 2:05 PM
It depends. CMU has a pretty good handle on it.
I would probably pro-rate everything based on square footage. Either that or percentage of downpayment if one partner comes to the table with more money. You could always convert to condo down the line as to divide the interest. That way one can sell without alot of trouble.
The wildcard is who would have access to the backyard? Everyone or just the garden unit owner.
Posted by: Adam Dahill at October 6, 2009 2:20 PM
if you buy into a 2-family building and the person you go in with stops paying their mortgage, do they just lose their portion? what other affects will that have on the other party?
Posted by: guikazoid at October 6, 2009 3:27 PM
blilly3- Have been looking at the possibility of a TIC myself, so my most pertinent advice to you is this: at $1mil price, you're looking at minimum 25% downpayment as well as the 1% mansion tax added to your closing. Liquidity is everything in NY, unfortunately. (at least unfortunately for me)
Posted by: sharpg at October 6, 2009 3:36 PM
I am so grateful for all of the comments. This is immensely helpful.
For expediency sake it looks like TIC makes most sense for us at this time. Condos would ultimately be ideal, but I hear that this takes a lot of time and is expensive...maybe down the line. From what I understand about the financing, all 3 parties will be responsible for the mortgage. Each will have their separate contractual share(based on %ownership), but if one persons share does not get paid it adversely affects each owner. Is that correct?
The question of how to divide the property: Noted that this is agreed upon between the individuals. Any input as to what is fair? The garden apartment as it stands is the only unit that provides access to the backyard. However, it could be used by the others...
Was thinking something along the lines of 50/25/25 or 54/23/23. The garden apartment owners will be contributing to the greater share of the down payment(80%)
Posted by: blilly3 at October 6, 2009 4:37 PM
I'm going into this with the expectation of condo-izing say within 5 years, as we will be living in the space and time is of less concern.
All parties may be on the mortgage, and will be on the deed. Total trust is necessary. If one person defaults, the others can sue him, but from a practical viewpoint, have to shoulder the burden. Make sure you have a contractual agreement not to "burden" the property (ie take out a II w/o telling others!)
Everything else like % division, who gets the garden, is trivial...or personal, which may not be the same thing.
Good luck.
Posted by: cmu at October 6, 2009 9:38 PM
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