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In today's real estate market, it seems almost impossible to buy one's own place. Looking at our future, it looks like it will probably be 5-10 years before we could afford something reasonable, and by that time who knows what the prices will be then. Even more disturbing, is the thought that with rising intrest rates, it will price even more people out of the market and push them into renting. This is bound to make rents go up significantly in the near future. Renting prices have not risen at nearly the same rate as home prices...yet. In considering this, I might have come up with a viable solution.

Multi-family properties have not had the same amount of increase as single-family homes. These properties are cheaper to start with and they must be able to make money for their owners, so the cost has lagged with the renting prices. Since these units are cheaper anyway, I was thinking that it might be feasible to purchase a complex as a group.

There are a couple of different ways we could go about this. If we purchased a complex of 4 or less units, we could use a normal residential housing loan. There are a good numbers of loans that are split into what is called tenancy-in-common. We would all be co-borrowers on a loan. This means we would own a percentage of the property, and all of our combined income, credit scores, and money for a down payment would go into the loan. Later we would split all costs, including the mortgage payment.
If we had a larger group, then we could look into something like a housing co-op. These are quite popular in New York, and were popular in the 60's and 70's with the hippie movement. ;-) In general we would set up a non-profit corperation in which we all own an equal share. This corperation would then buy a complex and as members we would pay it's fees (the loan and other expenses). This would be fairly complex, but it could help cover certain financial lacking that many of us currently have. Also, larger complexes are cheaper in general.

What numbers exactly are we thinking about? I have been looking in the Fullerton/La Habra/Whittier/Buena Park/La Mirada area, and fourplexes comprised of 2bdrm/1bath units cost between 850k-900k, so they would cost around 200-250k a unit. An apartment unit would be more in the 150-200k per unit range.

To give you a general idea, a $180k loan at 6.25% would be $1100 a month. If that was increased to 7% it would be around $1200. Or if the loan was $200k at 6.25% that would be about $1230. Add to this also insurance, possibly loan insurance, maintanence costs, utilities, property tax, etc. But, also we can deduct all points from the loan, property taxes, and all interest from federal taxes so that might help defray costs.

This would not be an easy process. Financially, we would probably need a 10% down payment plus closing costs (which could range between 1000-7000). They also look to see if you have held a job for 2 years, and they want your income to loan ratio to be .3. It might be possible to ease this if we had a co-signer with significant income (but that is a risky process for the co-signer). Also, we should all have fairly decent credt scores, or that could hurt our loan rate.

On top of that, we would have to find a lender that would work with a large number of co-signers. We would need to write up contracts dealing with subletting your unit to someone else, selling your share of the property, maintenence costs and work, etc. We would need to make sure we followed legal procedures for evicting the current tenents of property. We would need to find a decent property in a reasonable area for the people involved.

Is this possible? I don't know. If I could find several other people willing to try with us, we would be interested to pursue this in the near future. Please e-mail me soon if this is an adventure you would be willing to pursue...

Sincerely,
Dustin (and Katie) Guenther