Co-buying is becoming a more and more popular way to enter the real estate market, and pooling resources with a trusted friend or partner is a great way to enter expensive housing markets.
However, the living arrangement might not work for everybody.
First of all, what is co-buying?
Simply put, co-buying is the sharing of property ownership by more than one person.
In most cases, two or more people create a co-buying agreement to live together in the purchased property. In some cases, only one partner lives in the property, or neither lives there and it becomes an investment property.
The payoff from co-buying can be immense. You’ll be able to shop for houses in a higher price range, keep more money in your pocket each month, build your wealth and have a partner to share household chores and expenses with.
However, co-buying does involves what might be uncomfortable conversations with your buying partner.
You’ll need to share personal financial information, determine the value of each co-owner’s share in the property and negotiate an agreement that works for both partners, including an exit strategy if one person decides to sell.
Will you be equal partners? Is everyone investing the same amount of money? Will you all contribute to a contingency fund? These discussions need to occur before the basement floods or the furnace stops working.
On the plus side, mortgage companies have started creating financing solutions tailored to co-owning due to increased demand. These “family and friends” mortgages can be accompanied by an agreement on who pays what percentage of the mortgage.
But beware! If one partner does not pay their portion of the mortgage payment, the lender will expect full payment regardless. Even if in the agreement your ownership and portion of the mortgage is 40%, you will still be liable for the full payment should another party not pay. So you may consider putting three months of mortgage payments into a trust.
Overall, if done smartly, a co-buying scenario can work well for everyone.
Interested in co-buying with a friend or partner? Get in touch with us!