Seattle home buying as a group?

February 9, 2007 2:11 PM

A friend and I, and possibly others, are interested in pooling resources to buy a nice Seattle home as an investment and to live in (for now). Any experience/tips/quasi-legal advice on creating a small real estate trust or corporation to do this?

We basically want to do what the people mentioned in this thread, but making sure to set it up equitably, and to have legal documents and structures in place up front that make the transitions and future complications as easy as possible. I have some DINK friends from Microsoft who recently upgraded to a $700k home in Greenlake, which is beautiful and huge and spacious, with far nicer amenities and qualities than 3 people would get if they bought single-unit $233k condos. Seeing that inspired me to wonder if we could find some legal and relatively safe way for long-term friends, all long-term renters and tech workers in Seattle, to do the same thing and get to live in a much nicer "starter home" in a nicer area of town than we would otherwise.

My thinking is that this seems like a classic small business corporation/partnership model, which have well-tread legal structures for managing these kinds of group investments. Could we create essentially a corporation or partnership whose sole purpose was to buy this one house (at least for now- we aren't looking to do a true real estate investment group with dozens of members), which we would each buy starting shares in to the tune of $X which is enough for the corporation to raise the money for a down payment on the house along with other running costs and a pool of funds to cover unforeseen problems. We would then, via the corporation, rent the house initially to ourselves as tenants, and use that rent money to cover the costs including mortgage, insurance, upkeep, etc. Effectively it would be a business that we happened to live in. Down the road, if someone wanted to move, or liquidate their portion of the house, they could either sell off their shares to the remaining owners or someone else, or just keep their shares and help find a replacement tenant- in effect, keeping a clean divide between owning the place as an investment, and living in a nice place as a tenant.


So, at long last, my questions are:

• Is this legal/an established type of investment?
• Would a lending agency give a mortgage more or less readily to a business as opposed to an individual?
• Does anyone have experience doing this, or something similar?
• What kind of lawyer/accountant/real estate agent would you talk to for advice and guidance on setting something like this?
• What major tax/financial advantages would you gain from this arrangement, and what would you lose?

We know we'll be working with several lawyers at some point if we pursue this (one for each of us, and one for the actual business/investment), but would like to have a better idea of all the options and what's been done like this, so we can be more informed in our choices.

posted by hincandenza to Work & Money (4 answers total)

I think that what you want is called a Tenancy In Common, or TIC.

I've never been part of one, but they are popular here in San Francisco where real estate is so expensive. They have their ups and downs, as will become apparent when you read about them. It's all about the people you invest with.
posted by autojack at 2:43 PM on February 9, 2007

Yes-you can do this-but take what I say with a grain of salt b/c I don't know the laws of Washington.

#1: Don't think of this as a business-this is more like a marriage. You're thinking prenup if relationships go south, not profit splitting when you all get rich.

A limited liability company is probably your best vehicle. They are commonly used to buy and flip houses. The LLC owns the house. The members of the LLC (analogous to shareholders but NOT the same) own the LLC.

The bank-you just need to find the right loan officer. The LLC will borrow the money and all you guys (the members of the LLC) will probably have to sign personal guarantees. Count on 20% down

You "need" a transactional attorney. Not so much for setting it up, but for talking about ways to plan if things go south. As long as everything is humming along, you could use forms you downloaded off the internet to get up and running.

What to do if someone wants out 3 years down the road is your biggest planning issue-how will you buy the person out, etc? That's what so key to plan out now.

Everyone getting their own lawyer is a very wise idea, but so is a weekly prostrate exam. It might well be overkill just to buy one house. One attorney or even CPA you trust who advises everyone to go get their own attorney, has you waive conflicts, and then just explains things to everybody at once would probably do the trick. Your call.

Ask the CPA re: taxes. The LLC won't pay taxes itself, just file an informational return (form 1065). All income/loss passes through to the members. The LLC can deduct the mortgage interest and that will be passed on you.
posted by quercus at 3:34 PM on February 9, 2007

There's a difference (at least in CA) between a TIC and what I hear is called a co-op on the East Coast, so you could look into both of those as possible models, find out what's legal in Washington, etc.
posted by salvia at 3:57 PM on February 9, 2007

What you're describing is very similar to co-ops here on the east coast. I don't know of any specific laws allowing them in NY or barring them in WA, but that's what you want to investigate.
posted by jefftang at 6:30 AM on February 10, 2007