Monday, July 30, 2007 | About a year into his career as a Realtor, Denny Oh was itching to buy a home.
“I mean, most of my clients are older and buying million-dollar homes and I’m renting a $500 room somewhere?” he said. “It’s kind of like a car salesman who doesn’t own a car.”
But home-buying in San Diego is a massive financial strain for most of the county’s households. And with just a year under his belt in a commission-based business like real estate, Oh knew his income made it impossible to buy alone. So, two years ago, he and two college friends went in together on a three-bedroom, two-bath condo in Pacific Beach.
His friends were dating each other, had been for several years. Oh moved into the second bedroom, and they rented out the third. They wrote up a contract and each has one-third ownership of the condo.
But then, a few months ago, the couple broke up.
“We don’t really know what we’re going to do,” he said. “Obviously, it wasn’t planned and we’ll have to figure it out.”
Oh and his roommates show one way to achieve homeownership despite sky-high prices in an expensive city. In 2005, the year Oh and his partners bought their condo, 4.3 percent of the homes purchased in the state were sold to two or more unrelated, unmarried individuals, according to the California Association of Realtors. Last year, 3.9 percent of the sales fit that category.
And a group of entrepreneurs has a new program they say will popularize the non-traditional home-buying method. But in the model, the homebuyers might not know each other very well at first. Applicants sign up on roommate-finding websites or at their workplace and complete a personality survey, much like online dating.
Skeptics warn mixing a mortgage with the typical causes of strife among roommates yields near-certain disaster. Even questions of painting, decorating — not to mention renovating or repairing — could sever the roommates’ relationship.
“You can’t kick your roommate out if he’s a part-owner,” said downtown Realtor Lew Breeze.
And market conditions are far from the golden days from several years ago, when a housing unit could almost be counted on to turn a decent profit in a very short time. Now, Breeze said, prices are wobbling and will likely stay that way for a while.
“If even the most positive general consensus is true, prices are going to stay flat for the next 18 months or more,” he said. “And even after a couple of years, [the profit] really won’t be much to divide.”
Or worse, the market could dip further, and the home-buying partners could lose some of their investment if they decide to sell.
Indeed, despite the breakup, Oh’s biggest regret about his situation is that they bought in 2005, at the peak of a sizzling housing boom.
“I probably shouldn’t have bought; I should have waited and rented,” he said. The condo “is probably worth exactly what we bought it for. We would not make any money at this point. Maybe in a couple of years.”
Oh puts a major caveat on endorsing the home-buying team: the relationship has to be in place, and strongly so, before this can work, he said.
“We have known each other for 10 years,” he said. “We can separate our emotions and personal feelings from business. Yeah, we bought at the wrong time, but we’ve loved living here.”
But some local entrepreneurs have developed a system they say will make the home-sharing phenomenon even more widespread. Interested individuals can sign up to be matched with others who want to share a similar home. A mortgage is obtained by looking at their incomes and credit scores. The program is called “Purchase Partnerships” and differs from Oh’s situation mostly in the make-up of the home-buying teams: they’re not necessarily friends first.
But they might work together. Besides the individual applications the program accepts through the Purchase Partnerships website, a major focus of the program is on employers — setting up the framework at a major company and allowing that employer to offer reduced-fee access to the service.
Teaming up are Steve Ring, president and broker of Century 21 1st Choice in San Diego, Wells Fargo Home Mortgage, and Brent Nelson, owner of SDRoomie.com, a roommate-finding website previously focusing just on rentals.
“Employers like anytime anyone owns real estate,” Ring said. “They tend to be more responsible, do a good job. They don’t think about, ‘Ah, I’ll just leave San Diego next month.’”
And businesses might latch on the service as a recruitment tool, as well, the entrepreneurs hope: “Sure, housing’s expensive in San Diego but we at Company X offer you access to this program where you can team up with co-workers to get into the market.”
One of the five Realtors dedicated to this program does a presentation at a company, and then meets with smaller groups of employees. Interested employees complete a computer application that includes a personality profile section, and a similar system to the roommate-website program matches them up in groups, called TIC (tenants in common) pods. Then the Realtor arranges a lunch or dinner meeting with the pod before any other financial negotiations begin.
(The pods, named after groupings of orca whales, are a throwback to Nelson’s longtime work at SeaWorld, he said.)
Along with extensive contracts that detail exactly what happens when someone wants to move or sell, those personality aspects are a confidence-booster for Nelson.
“TICs are very common in the business end of development, like a strip mall, but [in a strip mall], they don’t have don’t have to sleep there and they don’t have to get along with everyone, too,” he said.
“Here, we might get three UPS drivers, who are wearing brown shorts all day together anyway,” he said. “They’re probably living together already, partying together at night.”
But when Oh heard the program described, he questioned how deep the get-to-know-you time could actually be.
“I don’t see how you can match up random people to buy homes together,” he said. “You have these Match.com and other dating sites, where you’re asked 100 different questions, and that’s just to go on a date and see if you guys can get along.”
As opposed to, say, buying a home together, which mandates a commitment of several years.
“It’s basically like a pre-arranged marriage,” Oh said.
But Nelson said the buyers realize they’re not embarking on a short-term investment.
“We’re recommending they hold it for three, four” years, he said. “Gives the economy a chance to turn. We’re 100 percent sure you get the tax savings, but obviously we can’t promise there will be appreciation.”
Nelson said there’s no cost to the clients beyond the typical commission on the sale of the home, which is usually between 1 and 3 percent and is dictated by the home seller. The Realtor accepts a slightly reduced commission and funnels the rest back to Century 21 for the overhead for the program. The group has yet to execute an escrow in the new program, but has a few pods set up and more than 80 interested applicants, Nelson said.
Oh said his living costs quadrupled when he bought his share of the condo unit, but it was worth it to live where he wanted to live and work toward some equity.
“You just have to really make sure everyone’s on the same page,” Oh said. “If one person or multiple people want to get out of the property, a few years down the line, it’s a he-said-she-said. What if you lose your job? What if you get married? It sounds bizarre, but stuff happens.”