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Stumped-Need your help

3297 Views 5 Replies 6 Participants Last post by  Spidey
Hello everyone,

Firstly, I would like to thank FT and Canadian Capitalist for creating this forum. I absolutely LOVE it, I also really like MDJ FT. And CC, I promise I will check your site out when I get a chance. I hope I am posting this topic in the right forum. I apologize in advance if it isn't. (I have a feeling its not).

Here is my current situation. I am 22 years old and I live in Ontario. I have been working full time since I graduated highschool in June of 2005. My friend and I purchased our first townhouse November of 2005 for 130k. The balance is now at 116k. It has 4 bedrooms and 2 bathrooms.

June 30th of 2008, we purchased a second townhouse near the University for 197k. The remaining balance on that is 192k. It has 4 bedrooms and 3 bathrooms. And could easily use a facelift...or TLC.

There are two sides to every story. I am giving you my side. Obviously it will be biased. But to make a long story short and minus all the emotion and drama, I will get to the point. I started dating this girl Late 2007, moved in with her Early Spring 2008. Due to my conservative and frugal nature. I found it made the most sense financially to move back into my 130k townhouse with my then girlfriend and my 'friend' and other tenant. After a few months of living at the 130k townhouse, my then girlfriend and I broke up. Less than a month later...surprise surprise my 'friend' whom I own both properties 50/50 with starts dating her. They moved out November of 2008. He works in the automotive sector and has been getting part time hours and recently was temporarily laid off for at least two or three weeks. Without much warning, I was informed that he was moving back into the 130k townhome. I know I could veto my ex girlfriend from moving back in, but it wouldn't really solve much. Especially considering that I cannot and will not live with either of them.

So, I have kind of been ousted from my home and am going to be moving into the 193k townhome. Which currently has two students in it and we will be needing to rent out the 4th bedroom at that place. (I know some of you will laugh. Some of you will shake your head knowing this would be a train wreck from the get go. And some will say, "forgive and forget").

I don't perceive myself as a hardliner or anything like that. But when it comes to situations like these, I really don't think it is appropriate to date your best friends ex-girlfriend. The biggest insult for me was how the entire thing escalated. I found it extremely degrading and damaging to see the two of them start dating and screwing around while we all still lived under the same roof. It almost seemed to me as if they were flaunting it for fun. At this juncture, my friend...lets just call him a business associate aren't exactly on the best of terms. And in the long run, I can't really see this turning out very well. By no means are we at each others throats, I haven't even bothered to engage in a shouting match or anything like that. I just know, I can't stand either of them at this point.

So my question is this, What do I do? What would you do if you were in my shoes? Do I continue renting out rooms, I live at one residence and he at the other? And see how that works out? Is it worth keeping the townhouses long term as investment properties for financial security later on? Is a buy out in order? Or should we sell? I am really leaning towards selling at this point. But again, I don't know for sure, it was more of a sporadic decision. And I really don't like making rash decisions without really thinking things through.

Also, because there is not that much equity built up, what would be the tax implications? I know I should not take any of your advice as sound financial judgement without consulting a professional etc. I got the disclaimers and the like. Great lesson to learn, Don't do business with your friends or family. Or mix personal and business.

Again, I apologize if this is in the wrong forum, and I apologize for it turning into a really long soap opera. I am just really frazzled and...stumped right now. Which doesn't happen very often for me. Usually I am very focused and I am able to come to a decision rather quickly, but not this time round.

Thank you for taking the time to read, and I appreciate any constructive feedback you may have.

The Happy Wanderer
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Keep the properties and the business partnership and forget the girl. Just make sure that legally everything is in order and there are contracts in place to protect yourself.

For the better part of my working life pretty much any job I've had I've become close friends with my bosses. When I screwed up they gave me hell and we never let our personal friendship get in the way. I know this isn't exactly the same thing but I just wanted to point out business is business and don't let the personal stuff affect a good deal.
Thanks for the kind feedback!

As for your situation, that is a tricky one. If you were to sell both properties, you would face capital gains tax on your investment property if there is a profit.

I think what you do next depends on if you can keep business and personal relationships separate. As he is your "best" friend, the line is fuzzy at best. If it were me, I would have a sit down with the friend to see what your options are. If you aren't happy with the way things are, then things have to change.

Perhaps he would be willing to buy your half of the townhouse at market value, who knows?
I think it is extremely important to keep the emotions out of your decision, as hard as that may be for you. You entered into the income property business to make money, and I am assuming that goal has not changed, correct? If that is the case, you need to separate the fact from the drama, and just stick to the facts.

Fact: You can live in one house, him in the other without too much strain on your life.

Fact: You can continue to share the costs, and share the profits.

Fact: This will make you both money as your mortgage slowly gets paid off.

Fact: Your cost of living is subsidized by your other tenants, making living in one of your own homes the most cost-effective solution to your current "homeless" situation.

Fact: The housing market right now may not be the best for a seller, so if you do sell, you will not make as much as you might if you wait until the market turns in your favour.

Given the facts, I would say in terms of making money (which was your original goal) you should continue the partnership. It's obvious that your friendship has cooled off, but that doesn't mean you need to lose your investment. Just keep things business-like. Maybe draw up a mutually agreeable contract stating how you both think things should work with regards to rents, sharing costs, sharing work, etc. Stick to the contract.

I am pretty sure that in HIS current situation, he doesn't want to rock the financial boat either - these properties are the best thing happenning to his finances.

You have to make a decision in the end - are you going to let hurt feelings interfere with your business plans, or not?
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(I know some of you will laugh. Some of you will shake your head knowing this would be a train wreck from the get go).
No surprise! Relationships like this can and do happen amongst groups of friends, even if they aren't as close as your living arrangements. But as said by others, business is business, just make sure you have contract language in place to protect all involved, including your other tenants. You may have unwittingly created a situation of imbalance, where a tenant (in this case, first you, then your friend) has decreased personal costs (sharing the room) while inconveniencing the other tenants (more use of bathrooms, cooking facilities, shared food costs, etc.) You may wish to ensure this does not affect your ability to maintain quality tenants, due to perceived imbalances.
IMO, you should to end the business relationship. There's no easy way to keep emotion out of it. I'm not saying that you can't remain friends but you need some distance for the time being and the way the business is set up tends to rub your nose in it daily. It may get even more complicated if they're still together and you get another girlfriend or wife. There are 2 partners and 2 townhouses. -- Should be able to work something out where each of you have a townhouse. Get independent appraisals in case one of you has to pay something to the other partner (eg. townhouses have different values).
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