Buying property?

tawnyacoxSeptember 7, 2012

I am currently going through a divorce and have almost sold my house. I have enough to buy a smaller property with a mortgage. However my new partner (of 1 1/2 years) has offered to contribute a significant amount of cash to enable me to buy a larger more comfortable property. It will be a business arrangement, on a 5 year agreement. The bonus for him is he will have invested his money in property, which I imagine is the best way to do it. I would be grateful of anyones thoughts on this... Good idea?? Any pitfalls?? Legal matters we should consider?? Many thanks.

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Well, you could break up and then what would happen? Will he be on the title? (Opens door regarding property and income taxes, insurance liability and other things.)

If not, how is he securing his interest? If he just "gives" you the money, but you still have to pay it back, then you are obligated to disclose that source of funds to your prospective lenders. And that makes it part of your income to indebtedness ratio so that you may NOT qualify for as big a mortgage loan as you otherwise might. Taking the money in a private loan agreement, and failing to disclose it would be mortgage fraud.

If you are proposing to formally borrow it fom him (he would be your sole lender) then I suppose it might work. Although getting a loan at today's extraordinarily low interest rates that doesn't extend a whole lot longer than 5 years might not be so smart. What happens in five years? Would you have a hope of rolling it into a conventional mortgage if your partner wants to put his money elsewhere? Or would you be faced with having to leave your home?

If he is buying the property with you, you will need to work out how the interest would be re-divided should you split up, or one of you dies, and in the event of substantial property value increase. Unmarried couples don't have the same legal protections as married persons when it comes to things like inheritances, insurance, lawsuits, taxes, etc.

Buy your own (smaller) house, or buy a larger one together, but don't do what it seems to me you are proposing.

I suggest you look first to your economic security and only buy a house (and get a mortgage) that is within your own, self-sufficient means. It's bad enough to be at risk from large outside economic trends (unemployment, interest rates, inflation), but don't tie your emotional life to your financial life.

Bad for your love affair, and likely bad for your monetary affairs, as well.


    Bookmark   September 7, 2012 at 4:27PM
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I agree completely. I assume this isn't a gift. Buy your house yourself. I think you'll sleep better.

    Bookmark   September 7, 2012 at 5:06PM
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What is the nature of the proposed "business arrangement?" Loan? Partnership? Joint ownership? Details of the terms you're considering?

Need more details to provide useful feedback.

    Bookmark   September 8, 2012 at 9:16AM
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I don't care whether this is formal, informal or some other animal. You do NOT want to be tied to a 'new partner' in a business relationship for years to come. You just went through a divorce--didn't all the hassle of getting things sorted and divided show you how difficult it is to extricate your finances from someone else's?

Pitfalls? You're looking at the Grand Canyon. You say this is a new relationship--they have enough stresses, without having major financial issues like a mortgage to worry about. Adding that could actually be the deathknell not only to the relationship, but to any chance at a longer-lasting friendship.

And what if you do break up? No matter what is said now, what promises are made, you could find yourself in the position of fighting to stay in your home--because an ex just may want to pull out of the deal, and you may not be in a position to buy him out at that point.

It is true, you haven't offered a lot of the business details, but honestly? I don't think we need them to know that it's extremely unwise for you to hook your financial future to someone you aren't married to, who's a new partner.

Buy what you can afford, yourself, without help. That way you're not 'beholdin' to anyone, no matter how the relationship develops or doesn't. It will give you and your new friend a much better chance at relationship success, and if, down the road, you do make the relationship permanent, you can always sell and buy something larger at that point.

Look, I think it's pretty obvious from just the fact that you've asked the question, that you know this isn't a good idea--follow your head, not the stars in your and your real estate agent's eyes and buy something you can be comfortable living in, without anyone else's help.

    Bookmark   September 8, 2012 at 3:26PM
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If he really wants to invest money in property, investing "a significant amount of cash to enable you to buy a larger more comfortable property" for 5 years is not "the best way to do it".

The disadvantages apply to you are also applicable to him. This deal does not add up at so many levels.... strange to say the least.

    Bookmark   September 8, 2012 at 5:01PM
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If you go forward with the "business arrangement" just be sure to have a written contract. That way if the partnership/relationship sours you have a written legal contract. It would also depend to me on how much $ and how much of a difference it made to you or the person loaning it. A 50k "loan" from a multimillionaire charging interest is very different from someone taking money out of their retirement account to help you.Be careful about how you title the property. I think it would be worth having an attorney advise on how to word the contract. Would the partner have a right or interest in the house itself that they could foreclose on? Or is it just more of an IOU? Yes there are risks, but there are potential benefits as well.

    Bookmark   September 10, 2012 at 12:03AM
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