Combining Love and Real Estate Three Things to Consider

Combining Love & Real Estate 3 Things to Consider

Alice Lema: [00:00:00] Hey, real estate fans, Alice Lema, here broker John L. Scott in beautiful southern Oregon with another edition of weekly podcasts. Today we're gonna talk about real estate and relationships. It's Valentine's weekend, but it's also the beginning of the spring selling season, at least here in southern Oregon.

And a lot of folks wanna do purchases and sales listings together. So we're gonna talk about it. We've got three things to consider when combining love and property. So, first of all, it's very interesting, Home Light did an article in September of last year saying that only 8% of transactions on average are between people who know each other. And I would've guessed it was higher than that. Looks like it's 8%, but it's a very interesting part of the market. And I'm a big fan of group or multiple purchases for a lot of reasons. But you gotta, you gotta know what you're doing and you gotta know how to write things down.

So one of the [00:01:00] first things to consider is that if you're buying from a friend or a relative, it's not an arms length transaction. An arms link transaction is a key phrase that has to do with defining to the appraiser if there is, if there is a loan involved then the appraiser is actually gonna make note of that relationship and they're gonna add weight to that as an element in the actual appraisal. So you need to know, it can very easily have an impact on your appraisal, just the fact that you knew each other especially if it's not on the open market.

Now, if it's on the open market and a friend or relative is gonna buy it, and it's not an arms length transaction at that point, it's considered a little lighter element in the appraisal. But if you're off market, and you're related or you knew each other, then they're definitely gonna put that in the report and [00:02:00] it's gonna have some kind of an impact.

Okay. A lot of people don't know that. There's also rules in regulations in different states for how much of a discount you might be able to give or not. And in those situations, how the IRS or the state tax board handles that later. So ask all those questions upfront.

Number two, romantic partners that wish to do real estate together, whether they're married or not. And the reason I'm saying it that way is I know in California that's community property state. So they already have defined your exit strategy for you. But in Oregon, it's not a community property state, and there's not very many of us left in the union.

But in this situation even people that are legally married can use this little tidbit of advice. So romantic partners in general, if they have the desire to do a purchase together, then you want detailed written agreements, not only for who [00:03:00] owns how, how many percentage points.

Like you don't, I don't recommend a 50- 50. Somebody needs to be in charge. So you need to agree on that, even if it's only 51%, 52%. But the point is you wanna write down the equity and responsibility that each person has. So maybe one person has a 70% equity stake, but then that means they're also 70% responsible for the expenses unless you write that down differently.

But, but normally it's a fair even distribution of paying and profit, as I like to say. I also really, really encourage people to write down a written agreement for maintenance improvements, tax benefit distribution. And also the big question, what if we break up? So having all this written down so you have an exit strategy and the exit strategy might be dependent on [00:04:00] the relationship moving forward, but it could also easily be a different life event.

For example, we're gonna keep this property for 10 years or until somebody retires. Or somebody gets married or, or, but the point is that or needs to be filled in and you need to talk about it ahead of time so you can agree and not have any surprises. Now, these romantic partnerships I've done a lot of conversation about on my video. It's called Mortgage Before Matrimony super fun but it dives way deep into this kind of real estate transaction where you're romantically involved with the person. And I highly recommend you jump on YouTube and and watch that mortgage before Matrimony has a lot of other suggestions, but mostly you need a plan for the exit strategy.

And a lot of people don't do that. And then that's why there's such a faucet at the end because you didn't talk about it ahead of time. So what if we break up? What if we die? What if we get [00:05:00] hurt? What if the market comes to a certain point? What if a certain amount of time goes by and then you also wanna make sure that there's no unpleasant discussions about what color of paint? Are we gonna change the floor? Like talk about all that up front. And that needs to be in the agreement from the beginning. Either you designate a party to be in charge of those decision for the future or you make the decision now.

And it's interesting because we're gonna talk about group purchases next, and in the group purchase situation, a lot of those are investor types they know each other, they like each other. They might even be related, but they specifically don't have arguments later about what color to paint the house . So I encourage the romantic partner category to have the same thing. We wanna have as little disgruntledness as possible.

Okay, number three, group purchases. Now whether this be [00:06:00] multi-generational, which is really picking up some steam in our country, or a group of close-knit friends. I've got some millennial kids that are buying houses and duplexes together. But it can also be a group of investors, partner people, just, just people you love and trust and want to make money with.

That's what these are. And if it's a multi-generational transaction, I wanna show this chart because that really is picking up steam .And it's involving kind of a big age range. It's not just like the super elderly with the Gen X taking care of them. We've got three and four generation groups coming together for these purchases.

And it's really kind of impressive and also super beneficial. But it's a little more involved just because there's so many people. Like the number of people, the quantity of people is higher. So that does add a complexity. And what I discovered, and I wanna mention here as my final [00:07:00] note, is that in these group purchases and also in the romantic purchases that you need to stop and think what happens if you die or you become disabled. You need to identify the next person who's gonna take your place. Or you need to specifically say, this is what the group does with my share if something happens to me. And it's interesting because my estate attorneys tell me frequently, it's not if you die, it's if you don't. If you are had a stroke, if you are in a coma, something like that.

Milan Hansen from Southern Oregon law, very smart, very great lawyer. And that's, that's what he's always saying is it's not if you die, it's if you don't. And we're not trying to be negative in all this on Valentine's weekend, but it's the piece of the puzzle that a lot of these groups don't address.

And so to loop back to the romantic partner. If the romantic partners have adult [00:08:00] children, this is a great example. What if something happens to one of the partners, who's gonna inherit that piece and are they gonna allow the asset to remain intact, or are they gonna force the sale? All that needs to be talked about ahead of time.

If there's any heirs or beneficiaries or people in the second and third tier that might step in in an emergency, or in the event of a tragedy, then are they capable? Because you wanna pick people that are organized, that live beneath their means. They have not only have a printer, but they have ink in it, even though we don't use paper a lot anymore.

But you want that kind of a person to step in and take your place or you wanna sell your piece. Maybe, and maybe that's the way to go, is maybe you offer if, if there's an emergency or a tragedy that the partnership might get first right of refusal. But you see all this just needs to be talked about ahead of time.

So I really am a big fan of of all these [00:09:00] kinds of group real estate investing. I think we all benefit because we own more properties. We have spread out the risk and the equity can be built over time, over multiple addresses, which is just killer. That's just killer. But you can also do it with one, you don't have to buy six.

But there is some exponential wealth building if you, you know, do it in quantity. So that's our little talk about real estate and relationships. And again, make sure to jump on Mortgage before Matrimony. If you're doing a romantic type of purchase or sale with a with another partner we'd love to talk to you this weekend except for during Super Bowl.

But you can reach out. Here's my number, 541-301-7980. We still have a shortage of listings even though we're up about 25%, 28% depending on your area, from this time last year in southern Oregon in our number of listings for [00:10:00] sale. We still need more. We don't have enough.

And we're going into not only the spring selling season, but we have a lot more buyers that just ran into the market because the interest rates went down. Okay? So enjoy your weekend. Be safe, hug those you love, and we'll see you next week. Bye now.

Recommended: Mortgage Before Matrimony