Splitting home ownership with brother

May 7, 2005 1:04 PM

My brother and I are considering buying a two or three family house. Each of us would live in our own unit, and if we end up with a three-family, then we would rent out the third. What are we in for here? Is this a bad idea? Any advice from anyone out there who was done a similar thing?
posted by jclovebrew to work & money (11 comments total)

The first thing to do is sit down and hash out all the "what if X happens" scenarios. Although this is your brother, and presumably someone you feel you can trust, it's smart to spell all this stuff out in advance. What if one of you wants to relocate? What if the house needs extensive repairs? Etc.

A friend of mine once bought a house with her sister; she wound up getting married and moving, and her sister bought her out. It wasn't a problem in that situation, but it's not hard to imagine it turning into one. My mother and her sisters jointly own some property; one of those sisters has been extremely intransigent about selling it, and the whole process has probably taken 5 years off my mother's life.

One option you might explore would be to set up the property legally as a condominium or co-op. I don't know whether that is overkill for this situation.
posted by adamrice at 1:24 PM on May 7, 2005

When you say "house" are you talking about something like a tri-plex or an actual house where you share rooms like the kitchen with others?
posted by blueberry at 1:24 PM on May 7, 2005

Bad idea. If you are perfectly equal financially, it might work, but my older brother (well-established) and younger brother (just starting out) went in a house together. At first it was just a rental (two units), then when little brother got married, he moved in. Because he was the baby of the family and was just starting out, there was a lot of pressure on my older brother to shell out lots of money for what amounted to subsidies on little brother's house. Big brother finally just wanted out, but the best he could work out was to sell out to little brother for his share (i.e., what he paid for the house, even though he had put much more into the house in repairs, and the house had appreciated somewhat). When little bro sold the house, he made a tidy profit.

Maybe if both parties are more financially equal and written agreements are drawn up, it could work. Or maybe if your family gets along better than mine (which, actually, we all get along reasonably well, but the house was a bone of contention for a while between my two brothers).

Good luck.

On preview: what adamrice said. If you proceed, proceed with caution.
posted by Doohickie at 1:26 PM on May 7, 2005

To answer blueberry's question, I'm talking about something that has separate "apartments", each with their own kitchen, bathroom(s), bedrooms, utility bills, etc. Ther are lots of those around here in Jersey City, NJ.
posted by jclovebrew at 1:30 PM on May 7, 2005

Some answers to a similar question a while ago: different situation (kids, etc.) but good ideas nonetheless.
posted by fionab at 2:18 PM on May 7, 2005

I'd make a big list of all the things that will cost money and figure out who will pay for them. Talk the list over with your brother and see if you're still interested.

What if the entire property needs a new fence? What about the area only next to your unit? What about if the rentor's side (tri-plex's) fridge breaks? What about your brother's fridge? Who pays to paint your unit? Who pays for the plumber in your toilet backs up? What if you're brother wants out in 3 years, how will you figure out how much you'll have to pay him for his share?

If you ask me. Every dime either of you spend on the place is an investment that both of you will reap the benefits from. Thus, each dime you spend on the place should be 50 - 50 regardless of which unit it is going into. That is of course, unless someone is being greedy and wants a fridge with an ice machine, or wants Ralph Loren paint.

At first blush, I'd say it sounds like a bad idea. However, if you can figure all of this out and put it all on paper and agree to everything at the start, then I think it would be a great investment and a great opportunity for you and your brother to get to know each other even better.
posted by pwb503 at 3:13 PM on May 7, 2005

My girlfriend and I just bought a house together, so I've given some thought to these issues. First, ask yourselves: why do you want to do this? Do you value living near one another? For my GF and I the answer was easy: we wanted to live together, and we wanted to own; making money on the house is of secondary importance.

As adamrice and pwb say, you need to figure out exactly what the financial arrangements will be. Will you go 50-50 on everything? What if your brother wants to spend $10000 redoing the bathroom in his apartment (a capital improvement) and demands that you kick in half of it, even though you think its unnecessary? Who will handle the headaches that go along with renting the extra unit? Etc. etc. ad nauseum.

While I agree with pwb that the ideal situation is one in which you share all responsibilities 50-50, you might also consider some other arrangments, particularly if one of you is more financially secure. For example, one of you might be the legal owner and the other an "investor" in the property - e.g., he contributes a fixed amount to the property and you have a side arrangment that determines what he will get back in the event of a sale. You might even look into forming some kind of legal partnership, and have that partnership as the owner.

Whatever you decide, put it in writing; ideally, have a lawyer look it over and draw up a written legal contract. This will save you lots of headaches if there's a major disagreement down the road.
posted by googly at 4:52 PM on May 7, 2005

A good clause to consider having, to cover the eventuality of one party wanting to sell his share, is (assuming 50-50 ownership) that if one brother makes an offer for the other half of the house, the other brother has the option to not only reject the offer but to use that price to buy out the 50 percent of the brother making the offer.

Sort of like having one person cut the pie and the other person getting to pick which piece (half) he wants. Of course, it won't work well if one person significantly improves his/her apartment and the other doesn't, for example.
posted by WestCoaster at 5:22 PM on May 7, 2005

Don't do it. It is a bad idea.

If one of you is a charity case for the other, then the one with money should buy it all and rent to the other at a charity rate. If you can both afford to buy, buy separately. Never mix business (especially of that size) and family.

If you must buy together, maybe because you're trying to become big-time real-estate tycoons and make mom proud, try forming a corporation with one clear boss and doing all the business through the corporation. Make sure all rentals are contracts between the renter and the corporation, and don't rent to relatives unless you are prepared, no matter what mom might say about you, to have the police throw your brother and his wife and kids and dog out on to the street just before Christmas if he doesn't pay.
posted by pracowity at 4:58 AM on May 8, 2005

A couple of my friends have been landlords--don't forget to include that landlording is work. You might luck out and get a reliable long-term tenant who does a nice job on small repairs, but you might not. Finding tenants, dealing with late payments, and repairs are going to be somebody's job--think about who's going to be doing it. And covering taxes and maintenance is going to be somebody's money if you get a stretch with no tenant.
posted by Nancy Lebovitz at 10:41 AM on May 8, 2005

I think I have heard three rules when it comes to partnerships, don’t partner with family, close friends, or a significant other. Well I broke the last two. About 6 months ago I bought a house with my girlfriend, and a friend of ours. Crazy huh! We were all going to live in the same apartment so we decided why not put our rent money towards a mortgage? The plan made sense. So we found a house and mortgage that would equal our previous rent. And planned to live/own it for three+ years and sell it. Financially we were all on the same level and needed our combined income to afford any house a step up from a metal shed. I agree with most of the warnings that people have mentioned, and so you really need to think it through.

Financially it made sense for us, but to get there we were taking on the risk and responsibility of the partnership. I’d like to say everything is peachy, but we have had several small issue and differences with things like remolding ideas, budget, motivation, time commitment, etc, and relationships can get twisted and pulled. For example, it has been quite a process remodeling our kitchen when three people have three different ideas for what it should look like. I’d would rather own the house by myself for this reason, and if I could afford it, I probably would.

Probably the most important thing to consider is your relationship with your brother. If your personalities clash I wouldn’t do it, or really separate out the agreement as far as who pays for what etc. If you both think along the same line it might be easier, keep in mind that you will probably run into some issues with each other that you will have to get around.
posted by retro88 at 12:58 PM on May 9, 2005