Gyroscopic Investing

I would say about $600 to avoid any potential bad feelings.

If they do it that way they can both feel good about the arrangement.  Living with someone else is hard enough as it is.

To be honest, I would avoid the situation. Introducing money into a college friendship never ended well for me. I got myself into countless stressful Judge Judy situations. Then again I went to a liberal arts school with a bunch of artists and humanities types who were petrified by money. Things may be different if these girls are engineering majors or MBAs or something.

If this is a plan that's going to happen regardless of the potential pitfalls, I would want to make sure that the mortgage holder could continue to make payments if the other person flaked out or left after the relationship went south for one of the millions of ways post-college relationships can go south.

Also, congrats on these two girls for collectively having $24k in savings upon graduating. I think I left college with about $3k and many times that amount in student loan debt.

MediumTex wrote: I would say about $600 to avoid any potential bad feelings.

+1

Whoever buys the condo becomes a landlord. There are responsibilities and risks that come along with that and it's fair to be compensated for them. So whoever becomes a tenant should pay close to market rent for a room in a shared apartment, and the landlord should be cashflow positive on a monthly basis.

However, the renter will be a model tenant, and made themselves available without any vacancy or advertising, so it's fair for them to get a reduced rent in compensation. IMO a rebate in the 10-20% range seems fair.

If they do this, they MUST take their roles as landlord and tenant seriously, and the NEED to put something in writing. Ideally they sign the boilerplate rental agreement for their state. Arrangements like this always end eventually and it's more likely to be amicable if everyone knows exactly where they stand.

Pointedstick wrote: To be honest, I would avoid the situation. Introducing money into a college friendship never ended well for me. I got myself into countless stressful Judge Judy situations. Then again I went to a liberal arts school with a bunch of artists and humanities types who were petrified by money. Things may be different if these girls are engineering majors or MBAs or something.

If this is a plan that's going to happen regardless of the potential pitfalls, I would want to make sure that the mortgage holder could continue to make payments if the other person flaked out or left after the relationship went south for one of the millions of ways post-college relationships can go south.

Also, congrats on these two girls for collectively having $24k in savings upon graduating. I think I left college with about $3k and many times that amount in student loan debt.

+2 and agree with all of the above supporting comments.

Another thing to consider is that a presumably 15 or 30 year mortgage is a big commitment. People recently graduated from college often change their plans a lot in rapid succession; being tied down to a mortgage could put quite a crimp in that youthful mobility and freedom. How stable are their jobs? Might either of then want to or be compelled to relocate within the next year or so?

Getting a mortgage as a way to save money on rent strikes me as an example of being pennywise, pound foolish unless you can commit to at least 5 or 10 years of it. Otherwise you'll just drown yourself in the inevitable incidental hidden costs (closing costs, taxes, moving, more furniture to fill the larger space, busted toilet, leaky ceiling, etc) that would otherwise be amortized over the years.

PS is exactly right.  This sounds like a terrible idea.  Also keep in mind that many of the costs of real estate are on the selling side, so while it may be easy for them to get in, getting out (which they are quite likely to do!) can be expensive.  For example, the 6% of the sale that goes to the realtor.  (Which is something of a racket, and is showing signs of breaking, but that's a different topic.)

Concur that this is a terrible idea. Among the other joys of being a property owner, the fact that interest rates are low is a negative, not a positive, for buying, considering future price appreciation or lack thereof. Consider what that same condo would sell for with an 8% mortgage rate, all other things being equal.

What age is the building?

I think it is highly generational, yes. I don't view real estate as an investment unless you're actually treating it like an investment i.e. you derive income from it or take steps to increase its capital value with the expectation of a later sale. Something you purchase simply to live in ought to be thought of as a consumption good, not an investment, IMHO. Now getting a roommate and becoming a landlord is one way to turn it into an investment… but if your tenant is also your friend, you're also turning your friend into an income stream. In my experience, that's a recipe to eventually lose both the friend and the income.

If the prospective mortgage-holder could afford the payments in the absence of a roommate, has a stable job, doesn't anticipate moving soon, and has a personality type amenable to property ownership, then yeah, sounds like it's probably sane.

A personal home financed with a 30 year mortgage is a great inflation hedge.

From that perspective, home ownership is an outstanding investment.

My housing costs have gone down almost every year for the last 12 years through the use of creative refinancing, so home ownership is also an opportunity to benefit from falling interest rates--i.e., it's also a great deflation hedge.

I couldn't imagine buying a condo when I just graduated and wanting to stay in it long enough to make it worth the costs to buy it.

For the record, I had roommates the first year out of school. The last one I had would pay me late with checks from his Mom. BTW, he was 35 years old when this was going on.

Anyway he'd pay on the 20th of the month and then ask if the next rent payment was due on the 20th of the next month as well. I'd have to explain that it was due on the 1st as they all are.

He was paying me $300 a month to live in my two bedroom apartment. I decided that I'd pony up the $10 a day ($10X30 = $300 a month) to be left the hell alone by the idiot and I sent him packing. I never had a roommate again. I consider the extra costs as being peace of mind.

I guess the moral of the story is that roommate relationships can sour quickly as financial situations change, relationships get involved, etc. I wouldn't want to hitch my wagon to a mortgage at that age and rely on a roommate to cover the bills. There is a good bit of safety knowing you can jump out of a lease with minimal costs if you had to for whatever reason.  Mortgages are much harder to get rid of.

MangoMan, if you think it's a good investment property, then you could buy the place and rent it out to the two girls.  They'd get a discount from market rates for the reasons that KevinW outlined.  If one or both move out, you can replace them with regular renters at market rates.  This way, the girls remain peers, and they're still basically free to move along as they figure out where they want to end up.

There still may be some issues with having a landlord/tenant relationship with your daughter, but it seems like this has a lower potential for disaster than if one of them buys the place (which they always could, from you, later on).

And if you don't think it's a great investment property, well, then they probably shouldn't buy it either.

Xan, that strikes me as a really great idea.

I suggest finding out answers to a few things before proceeding:

1) What's the HOA rules on converting a unit from owner-occupied to an investment property?  This is an increasingly important issue, because buildings that fall below a fixed % of owner-occupied units may have trouble getting bank approvals, either for the underlying mortgage or for individual loans.

2) Are there flip taxes that would apply when the unit is sold?

3) How much is maintenance/HOA fee, and are there additional assessments either currently or expected in the near future?

The math may get a lot less attractive after you factor in fees, assessments, and closing costs while buying and selling.  If it still works out to be a big win, then I vote with those who suggested that YOU buy the unit, rent it out to both girls equally, and then keep it as an investment property after they've moved on. 

I would say that the "rent is too damn high"!

http://www.youtube.com/watch?v=rHEitsYJnmw