A Realtor and tech guru is battling housing affordability in California’s Silicon Valley area with a new service that seeks to form home-buyer groups for the collective purchase of small apartment buildings.
Bill Ricardi, founder and CEO of HomeSplit.com and a Realtor for Windermere Silicon Valley Properties in Mountain View, Calif., said the new service “is somewhere in between a house-hunter dating service and one of the most technically advanced ways to do tenants in common.”
Tenants in common is a legal agreement through which buyers form a group to purchase property. In this type of arrangement the group owns the entire property and individual members may have different ownership shares. Tenants-in-common arrangements are sometimes used by domestic partners who share a single unit or by real estate investors who want to own a portion of residential or commercial property. HomeSplit focuses on groups of buyers who will reside at the multi-unit properties they are purchasing.
For example, four buyers who form a tenants-in-common agreement to purchase and occupy a four-unit apartment complex could each have a different ownership share based on the different value of the individual unit that each buyer will be responsible for at the building. Under this agreement, the entire property is owned by the group — unlike condo ownership in which the portions of the property inside the housing unit’s walls are owned by individuals and all other space is owned by a group, according to a Web site resource by San Francisco lawyer Andy Sirkin, who is offering his services to HomeSplit clients.
“A common approach is to value each unit as if it were a condominium. Recent sale prices for comparable condominium units can be used as a basis for this valuation,” according to Sirkin’s site. “After purchase, each owner occupies and maintains … assigned areas. The costs of maintaining shared areas, and most other building expenses, are divided equitably among the owners using formulas described in the tenants-in-common agreement.”
Sirkin notes that owners in these arrangements typically share one or more mortgage loans “because individual financing has not been available.” With group loans, tenants-in-common agreements provide that each owner can have a percentage of responsibility for the repayment of each loan, according to the site description. And individual members typically will have different down payments based on different income levels. “This problem can be overcome by making each owner’s percentage share of the loan different from (the owner’s) percentage share of ownership.”
Ricardi said HomeSplit will focus on assembling groups of buyers who have compatible interests and then finding two-unit to four-unit properties that meet their needs. The company will target properties that do not have long-term leases in effect with current tenants. “It’s typical with tenants in common to deal with only month-to-month (contracts).”
“This makes for a much more affordable home than anything we’ve seen in the South Bay,” he said. “For splitting multiplexes … the average savings that I’ve seen has been anywhere from $50,000 to $400,000.” Low-end single-family homes in the area tend to sell for about $700,000, while the average duplex sells for about $850,000 to $900,000, he said. “Given that, you can see the extreme savings (of group ownership).”
Ricardi estimates that the individuals will pay about $1,250 a month in a HomeSplit transaction for their share of the loan on some of the least expensive units available in his market area, and that does not include taxes, insurance and other household expenses.
HomeSplit will initially focus on Santa Clara and San Mateo counties, with a goal to franchise the business and expand to San Francisco and beyond. The site is still in beta mode and is expected to launch within a week.
HomeSplit supplies forms to prospective buyers that give the company an idea of the types of properties that buyers might be interested in. The company also has lined up a couple of lenders who are familiar with this breed of tenants-in-common ownership, and HomeSplit can assist buyers in pre-qualifying for loans with those lenders or with other lenders.
Ricardi said he seeks to match up buyers with similar income levels and property preferences. The HomeSplit Web site describes all of the steps in a transaction: pre-qualification, matching with other prospective buyers, finding suitable properties, inspecting vacant units and making an offer, inspecting the entire building, consulting a lawyer for the partnership agreement, signing off on a contingency period and allowing the landlord to inform current tenants, closing the deal and working with current tenants, and moving in.
Four-plexes tend to be the most affordable among two-unit to four-unit properties, Ricardi said. Multi-unit properties are generally considered to be investment properties, with prices based on the capitalization rate, he added, while individual units tend to be driven more by a supply-and-demand market. “We’re just taking advantage of the difference of those two markets.”
There is plenty of multi-unit inventory on the market, Ricardi said, and multi-unit properties tend to have a longer time on market than single-family residential properties.
The legal contracts will provide for flexibility and will be catered to the specific desires of the prospective buyers, Ricardi said.
Ricardi is accepting referrals from other real estate agents who have clients who are interested in a tenants-in-common multi-unit purchase.
A bad property ownership experience by Ricardi’s friends, and a goal to expand home affordability, prompted him to create HomeSplit. “A couple of friends got into a tenant-in-common situation … without any preparation whatsoever. One person wanted to move, the other wanted to stay. People should get this documented, they should have a partnership agreement and go from there. A system like this will help people avoid getting into a messy agreement.
“Even if it’s family you should always have a legal agreement. (HomeSplit) is bringing a new level of organization to it and that’s really the bottom line. It makes it easy for the buyer, it makes it easy for the seller and it makes it organized and legal,” he said.
Ricardi is a former tech worker who left a career as a Web developer and system administrator two years ago to work in real estate. He said he got his idea for HomeSplit soon after he became a Realtor.
Tenants-in-common agreements have been around for a number of years and are definitely gaining in popularity, said Julie A. Frambach, a real estate lawyer at San Francisco law firm Hopkins & Carley. “Three years ago most people didn’t predict it would come into the popularity it has right now,” she said. “I still don’t think it’s something that if you walk down the street and ask about a tenants-in-common agreement that they’re going to know about it,” though she said these agreements should grow as other property ownership options narrow.
In the past, it was typical to see tenants-in-common agreements drawn up for joint-tenancy situations in which two people in a relationship were living together, Frambach said, though the agreements are now a popular investment vehicle.
There are a number of variables that can crop up in property ownership by more than one person, such as the level of rent to charge, the amount of insurance to obtain, and the amount of maintenance to perform, she said. “When people don’t know each other, it’s like getting into bed with someone you don’t know, absent a tenants-in-common agreement.”
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