Can This Be Done? Should This Be Done?
Hi,
So many people in So. Calif. do not have the $ to put a down payment on a SFR but the longer they wait, the further behind they are getting. If we find people who have excellent credit, great job history, but lack the $ for a down payment, can we go in as co-owners on a SFR with them with each of us putting in 50% of the necessary downpayment and them making the monthly payments and living in the residence? After 3 years, we would either sell the property and each of us take half the profit, or they could refinance and take out enough cash to pay back our initial investment plus our 50% of the home's appreciated value. Would this work or am I missing something big? (Yes, I know I'm assuming that the home will appreciate and of course, the details would have to be spelled out in a contract between the two parties.)
Thanks,
Liberty
Liberty (like your name),
If you cosign on the loan then you are loaning your credit to a perfect stranger. Having 50% ownership may have less strength than having a secured lien. Any late payments will show up on your credit history. If your co-owners get sued, creditors may be able to force the sale of the property...or at a minimum, court awarded judgments will attach to the property. If they don't pay their income taxes, the IRS can put a lien on your co-owner, and therefore your property. Supposing you make it all the way to the refinance, those liens and judgments will get paid before you do. Not to mention that people do funny things when there's a lot of money on the table. Do you really trust these strangers to do the right thing? What if they trash the place and bail? What if you sell this partial interest to a married couple and they divorce? What if they lose their job, die, or are forced to relocate? How do you get your 50% interest back if you can't get someone to sign at least a quit claim deed?
It sounds like you're thinking about a problem and trying to address it creatively. That's good. But in this scenario there are just too many variables and ways for things to go sideways. If you can find a way to plug all of the holes, maybe you've got something...but I think you should probably pass on this one.