Renting to Own

Dear Jewish Fairy Godmother:

Years ago I bought a house as an investment with a good friend. I’ve
lived there for the past fifteen years, and we have used the rental
income from the downstairs unit to reduce our principal payment. Now
he wants out and a different friend has offered to buy his portion, but
only if I agree to a big set of deferred maintenance. It will cost me
about $10K out of pocket (actually out of retirement savings) but the
alternative is having to sell my home and start over. I have agreed to
kick in the money if we can agree on the list of repairs, some of which
I know need to be done but some of which seem unnecessary and
ambitious. Some are cosmetic, some are structural, and some would
make it more modern for future resale. But I am only 65 and would
prefer to live here till the ends of my days. I’m appreciative, and I
don’t mind putting up with tenants below me, even noisy ones, but I
do want security. Ideas on how to talk to her?

Renting to Own

Dear Renting:

If your name is on the deed you are renting from yourself and the
bank, not from a landlord. But co-investing, co-owning, co-occupying,
and co-planning are not always the same thing. You don’t say if you
had a set of understanding and agreements with the original friend
when you bought the place. But now is the perfect time to lay them
out with the friend who wants to buy in. Note than any relationship
that does not have financial equity built into it is already unbalanced.
The point of the agreements is to have a level playing field. And just
like any new work or relationship situation, the earlier you can agree
on the rules the better. If she wants to recoup her money sooner than
you want to move, finding out sooner is critical.

Sit down with the new investor and make lists. Cash flow projections,
lists of needed repairs with estimates (even machete level ideas, times
$1.5 because construction always costs more), and agreements on
style. The latter is important because, for example, a new granite
countertop will cost you a whole lot more than wood or linoleum. Ditto
paint versus wallpaper or tile. Try to ascertain how much “artistic
control” your new co-investor will want. If you have a budget, then tell
her what it is and make it clear where your money is coming from and
that it is limited. Build into your agreement a condition that sale
requires the consent of both parties, as do repairs and improvements
that cost more than $X thousand. Then rank the needed repairs and
practice negotiating. It may take you a while to find agreement, but
the investment in communication is worth it.