Buying real estate with co-ownership?
So you're buying a house with someone who is not your spouse. From co-housing, communes, and intergenerational housing to friends just buying a place to share, we are seeing more and more deals involving co-ownership: multiple buyers that are not married or in a comparable relationship.
While it can be a great idea, it's important to start with a clear understanding of individual goals and a formal legal agreement.
Buying real estate with multiple owners can be a solid financial investment. Pooling assets and effort increases buying power and reduces housing expenses. Parents buy with children. Siblings, roommates, groups of friends...buy together.
However, these non-traditional arrangements pose unique challenges that should be considered and planned for well before closing. We recommend you start with legal counsel from knowledgeable real estate attorney—even before you look at property.
Together, the buyers should hash out the answers to these questions (and probably more):
How title will be held with multiple owners?
This may be as simple as deciding on percentages of ownership and what happens to each party's interest in the property if they die. But a deeper investigation may be warranted. Each partner may have different needs and expectations, and the larger the group of owners, the more complex these decisions can become. If you plan on buying property with someone that you are not married to, you should definitely begin the conversation early in the process and consult with an attorney to explore the right options.
Loan eligibility may also influence how the buyers take title to the property. Which leads to the next question...
Do all buyers apply for a mortgage? Or just one?
A mortgage lender can help assess whether all or just some buyers will apply for the loan. One buyer may have credit or income issues that could disqualify the whole group.
Also discuss what kind of mortgage/s you'll get. If significant repairs or improvements are contemplated, it may also be worthwhile to discuss construction or secondary financing.
Work with an expert loan officer to find the right solution. If you don't have a lender lined up, ask us. We work with some of the best in the business.
What should be in your co-ownership agreement?
Multiple buyers should have a formal agreement on the allocation of ongoing expenses, and ultimate disposition of the property. Consider what happens if one party wants to sell and another does not. Or if a party dies. Or something unexpected occurs.
Without advance planning and a clear agreement, unwinding a co-owning arrangement can be difficult and costly. Far better for all concerned to agree on a plan before entering into a co-buying enterprise than leaving it to a judge's decision after costly and time consuming litigation. Our firm can help with this type of agreement.
A formal agreement can include:
- Who pays what in the initial purchase closing
- How ongoing expenses get allocated between the parties
- How special expenses (repairs and renovation) get allocated
- Who decides what expenses should be incurred
- How will the parties break deadlocks?
- What happens if a party cannot/does not pay their share
- How are costs and proceeds allocated upon a sale
- What happens if one party wants to sell
- What happens to shares if someone dies
- What happens if someone wants to move out
To help manage these and other issues, co-buying partners are encouraged to find legal counsel early in the process. We've seen many succeed in these ventures but have also seen things go badly. That's why we recommend talking to an experienced real estate attorney, ideally before you start searching for property.
If you're buying real estate with partners, schedule a call with me (Mike) or John, our lead attorney, to discuss. We are here to help.
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