Geekhaus

Links

Check out candidate houses and proposed co-owner agreement.

The Idea

Get a group together to buy a house, presumably the four current Geekhaus denizens.

Why?

Where and What?

Preferably, a four-bedroom place somewhere not far from the current Geekhaus: Redwood City, San Carlos, or (dare we dream) Woodside or Portola Valley.

How?

Form some sort of legal entity that will allow multiple folks to get the home-interest deduction and build equity, in a market where none of us individually has a snowball's chance in hell of purchasing.

Numbers

Currently, the Geekhaus rent is $2450. This is completely pissed away; we get no tax breaks, no equity, no chance to ride a market up and cash out. (Mortaged property is, in a sense, a highly leveraged investment that you happen to be able to live in.)

Let's consider a $500K house (which is on the low side of the going rate for four-bedroom places in the area). According to a mortgage calculator I found, a 30-year loan at 8% (which is in the ballpark for the going rate) results in a $3668 mortgage payment, a $520 property tax payment (1.25% of the purchase price), and $141 in insurance. The insurance payment is a rough estimate and would almost certainly be higher when you consider quake insurance. But for now, we'll go with the $4331 total. (Note that we may have to scramble to come up with a big-ass down payment if we want to avoid getting mortgage insurance; at this writing I haven't figured out how much that would cost.)

Divided evenly, that's about $1100/month each, which is clearly a good deal higher than what we're paying now. However, if each of us has a marginal tax rate of around 40% (i.e., the last dollar you make in December is taxed at this rate), and assuming that at first we're paying virtually all interest and no principal, paying $1100 gross is equivalent to paying $660/month net. (Note: need to investigate how much is interest and how much in principal.) The other $440 is being picked up by Uncle Sam. I assume the exemption applies to state taxes as well, but this requires further investigation. Interest is being "pissed away" at roughly the same rate we're currently paying rent, so in that sense we're not doing any better or worse by buying instead of renting.

The upshot is, each of us can easily afford $660/month of "piss", especially when a little bit of it is going into equity. So it's good to know that we're in the ballpark already, even if we go looking for a house that costs about $500K. In fact, if you keep the mortgage duration and rate fixed, the monthly payment scales linearly with cost. So a $600K house would put us each $792/month out of take-home pay, which isn't completely outrageous.

Here are a couple of examples of a $650K house with four owners and another with three owners and one renter.

Pitfalls

I intend to list things that could go wrong, take a guess at their liklihood and financial impact: termites, falling housing prices, earthquakes, multiple simultaneous people moving out, etc. This will require more investigation.

Structure

I'm going to try to locate a real-estate attorney who is smart about these sort of things. Clearly we need the right sort of contract that allows us to add and remove partners without excessive financial risk to those remaining. We'll need a structure for accomodating renters in the event that we lose a partner who cannot be replaced in a timely fashion.

I've heard that an LLC, a "limited-liability corporation" is a fairly standard structure ... I will talk with the lawyer guy.

Plan of Attack

Criteria

Things to Watch Out For

Some notes jotted down from a book I bought called The 106 Common Mistakes Homebuyers Make:

Some Listings

The stuff in the list below I extracted from that real-estate flyer that we get in the mail every week. I'm also accumulating some links to on-line listings, such as HomeScout. Here's a sample search, for houses within 5 miles of Redwood City with 4+ bedrooms between $400K and $620K. If you start clicking on properties, you can get both house and mortgage information, including estimations of closing costs (eek! they're big).

Last updated: 8 Aug 97

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Last updated 27 Aug 97 by max