What to Know About Buying a House with Friends

In the face of an ever-challenging housing market, Canadians are getting creative with how they acquire their first homes. Recognizing the hurdles of high property prices and the complexities of securing a mortgage individually, many first-time homebuyers are now exploring the prospect of buying homes with friends. This trend represents an inventive approach to homeownership, pooling resources to overcome financial barriers. This alternative ownership trend is discussed in depth in a recent RE/MAX report about alternative housing trends, offering insights into how groups of friends are navigating the Canadian housing market together. This solution not only enables them to invest in their future but also strengthens their communal ties, proving that collaboration can pave the way to achieving personal homeownership goals.

With the rising cost of living, the dream of home ownership is increasingly difficult for many people. If you’re finding the solo homeownership journey a bit out of reach, teaming up with your mates might be the solution you need to make the dream work. Pooling resources with friends presents a practical solution to bypass the financial barriers of buying a home. Here is a rundown of what to expect when you buy a house with friends.

How Co-Ownership Works

Co-ownership involves purchasing property with one or more partners and offers a unique avenue for those looking to invest in a home without bearing the entire financial burden alone. It can generally be structured in two main ways:

Joint Tenancy – In joint tenancy, all parties have equal shares and rights to the property. It includes the right of survivorship, meaning that if one owner dies, their share automatically passes to the surviving owners, bypassing the estate.

Tenants in Common – Tenants in common allows owners to hold unequal property shares and does not include the right of survivorship. Upon the death of one owner, their share becomes part of their estate and is distributed according to their will.

Pros and Cons of Buying a House with Friends

Purchasing a home with friends has become an appealing option for many as it provides a collaborative approach to overcoming financial barriers in the housing market. While this arrangement can offer numerous benefits, it also has some challenges.

Here are some of the advantages of buying a house with friends:

  • The financial responsibilities are shared, including the down payment, mortgage payments, property taxes, and maintenance costs.
  • Pooling resources can increase purchasing power, potentially allowing you to buy a larger or more desirable property than you could afford on your own.
  • Buying a house with friends can be a strategic investment, offering the chance to build equity and potentially profit from the property’s appreciation over time. It can also be a stepping stone to future real estate ventures.
  • Beyond financial aspects, co-owning a home means sharing the responsibilities of homeownership, from maintenance tasks to decision-making about improvements and repairs.
Here are some of the drawbacks of buying a house with friends:

  • Co-ownership requires consensus on numerous decisions, from choosing the right property to agreeing on its use and management. Differences in opinion can complicate these processes and potentially lead to conflicts.
  • The financial stability of each co-owner affects the collective. If one party encounters financial difficulties, the others may have to cover their share to prevent defaulting on the mortgage, potentially straining personal finances and relationships.
  • Living with friends or managing a property together can test relationships. Disagreements over financial contributions, property use, or plans can create tensions that spill over into the personal realm.
  • Co-buyers are jointly responsible for the mortgage, which can complicate future financial endeavours, such as applying for loans or buying another property. It also means that selling the property or one owner’s share can be complex.

Things to Consider When Buying a House with Friends

Purchasing a home with friends is a big commitment that requires careful thought and planning. To ensure this collaborative venture succeeds and remains beneficial for all parties involved, there are several critical factors to consider:

Financial Stability – Each party’s financial situation should be transparently discussed, including credit scores, income, debt levels, and savings. Financial disparities among co-buyers can affect mortgage terms and the group’s ability to keep up with payments. Beyond the purchase price, consider how ongoing expenses like utilities, taxes, insurance, maintenance, and unexpected repairs will be shared.

Ownership Structures – Decide whether you will be joint tenants with rights of survivorship or tenants in common where each person can own a different share and will give their portion to someone else upon death. Consult a real estate lawyer to draft a legal document outlining how the property will be managed, financial contributions, what happens if someone wants to sell or can no longer make payments, and how disputes will be resolved.

Mortgage Implications – Lenders will consider all co-buyers’ financial information. One person’s poor credit could impact the group’s ability to secure a mortgage or affect the terms of the loan. Joint ownership of a property can also influence an individual’s ability to obtain loans in the future, as the mortgage will appear on each co-owner’s credit report.

Relationship Dynamics – Living with friends or managing a property together can strain relationships. Discuss expectations for property use, living arrangements, and how to handle disagreements to minimize conflicts. Life changes, such as marriage, relocation, or financial hardship, can affect one’s ability to remain a co-owner. Establish clear exit strategies for selling the property or one owner’s share, including buyout clauses and how the property’s value will be appraised.

Property Management – Whether the property will be a primary residence for all owners, a rental investment, or a vacation home will dictate management responsibilities and how expenses and income are shared. Allocate responsibilities for day-to-day management, maintenance tasks, and decision-making processes regarding improvements or changes to the property.

Are you and your friends considering co-ownership of a home? Contact a RE/MAX agent today, and take the first step towards turning the dream of homeownership into a reality, together.

Originally published on the RE/MAX Canada Blog.