Years ago I owned a house for a little while. It started out in the 50s as a small two bedroom and then over the years someone finished the attic as a legally conforming bedroom, then finished the basement and put the teeniest bedroom in it. Smallest house with four legal bedrooms I have ever seen.

I rented out the spare bedrooms. I was a landlord. No excuses.

But if I ever found myself in that situation again; How can I ethically share the costs of a house if it has an owner? I couldn't figure it out then. I don't think the situation will ever come up again. But I desperately want some kind of absolution in knowing if I could have done better, and how to implement that if it happens again.

The problem I couldn't figure out was how to give the renters some kind of equity. I didn't have trusted friends I could set up some kind of coop with. Setting up a coop with strangers was very high-risk; I have a severe mental illness and i'm disabled most of the time, so if things went badly I would be in an extremely vulnerable position with few options.

Give me some input. A rich uncle you didn't know you had leaves you a small house with four bedrooms in their will. You can't afford the mortgage without some help. What do you do? How do you work around mortgages and ownership?

  • D61 [any]
    ·
    edit-2
    9 months ago

    Silly idea... but the least amount of paperwork dealing with bureaucracy. Feels super risky

    Pulling numbers outta my ass here... so ... yeah.

    2k a month in mortgage (I'm going to assume this has the home owner's insurance included... because that is what my mortgage company did) with a 1~2k bill, once a year, for property taxes.

    2k *12 = 24000

    24000+2000= 26000 in mortgage and property tax a year.

    Lets say, there's lots of people willing to try to rent your three other rooms. An even split would be..

    26000/4 = 6500 per person, per year

    6500/12 = 541.67 per person, per month to pay for the home owners insurance, mortgage, property taxes. (never had renter's insurance but I'd imagine that you'd probably want to look into that and this would change the numbers in an upward way...)

    So, what would happen if everybody, all four of you, paid 600 a month in rent?

    600*12=7200 a year @ 600/mo

    7200-6500 = 700 extra per year

    700*4 = 2800 extra per year from all housemates.

    So... maybe you'd be able to work something out where you'd save this 2800 every year, in some interest bearing account... probably a 30 day CD or something until you get a larger amount than 5000 (then you'd break it into two chunks, one chunk that stays in short duration CD's and the rest in a 12 month CD).

    You'd bee keeping meticulous accounting of who paid how much during what time periods so when they left, you'd work out a repayment plan where you'd slowly pay them back from that pool of money generated from the extra 2800 a year until you'd paid them back what they paid you. As new renters moved in, they'd be adding to the slush fund to pay back previous tenants.

    Like I said, its a bit risky and requires lots of coordination and everybody keeping in contact with each other. This possibly would work better in situations where you can get stable renters who stick around for 5+ years.

    But handshake agreements could be made that, when/if a renter can't make their rent for the month, their portion of the slush fund could be used to cover their portion of the current month's rent. This amount could be deducted from your obligation to them if/when they move out. If they were flush with cash they could pay more into the slush fund ... but ... I dunno why somebody would want to bother with it. If the money is kept in your name, they wouldn't be expected to pay taxes on it until they started getting their payback from you (assuming you can't just give them their money in cash).

    Alternatively... and a bit more... dirty...

    Depending on what the actual mortgage per month, insurances, property taxes, utilities are AND if your source of income were reliably stable... you could try to pay the lion's share of the mortgage's principal (or overpay when possible) and the other housemates' rent goes towards the lion's share of the mortgage interest, insurances, property tax bill. You can still do the payback routine listed above but you just work on reimbursing the housemates for their contribution to the equity of the house and not the other bills (interest, insurance, property tax). They'd get less back but if would mean that, when they left, you wouldn't be expected to pay them back as much per person as in the above example.

    Or if you're income allows you to pay the mortgage and property tax in full, the other housemates' rent is to cover utilities and maintenance. Technically, you'd have an argument for still having full equity in the house. Then its either, no payback scheme for housemates that leave or a (hopefully) smaller duty to slowly pay them back for all the utilities/maintenance that they fronted you the money for during their stay at the house.

    Best case scenario: You get a crew of super awesome folks who vibe with everybody else and are your housemates for 10+ years. You start out doing the first scenario but every year have a big sit down and plan for next year, decide if things are going well enough that everybody or just some people can pay more per month with that extra going to pay down the principle, which will reduce the overall mortgage interest cost. Paying off the mortgage sooner, rather than later (even with penalties) means you actually have some ability to change your homeowner's policy to a more favorable rate, which reduces that bill. So now, you all can decide if you want to keep paying rent at the current rate that will mostly go into a communal slush fund or reduce the "rent" to just property tax and the insurance. Or you pay more into the kitty while everybody else pays less so that if/when a housemate leaves you have a fund to begin the payback process. This is all assuming that you all don't get to a point when you agree to sell the place and split the proceeds between the housemates as their payback.

    There's LLC's and Co-ops and stuff, but its probably lots more paperwork and tax accounting stuff.

    Oh, I forgot to mention that you could have your payback scheme broken down between two time frames. I shopped at a grocery coop that would break down a customer's yearly patronage into two piles of money. One pile of money would get paid back at the end of the year as a patronage refund for the current year and the other pile would be held back for ... some ... amount of years (i forget how long) before being returned as a patronage refund. You could do the same if you can keep your books straight enough, and the renters don't disappear off the face of the earth for long periods of time. Makes their income tax burden potentially less and reduces how much you'd be expected to payback during any month.