Buying a Home With Friends

With the sharing economy changing the way people think about buying everything from cars to hotel rooms, it was only a matter of time before real estate made the list.

With many buyers priced out of their preferred neighborhoods when it comes to homeownership, some are choosing to pool resources with friends to purchase a house together. This challenges the common notion that you buy a house to escape from your roommates. On the contrary, buying a house is a long-term investment that may bind you to your co-buyers for years to come. 

Is it right for you? That's a big question. To help you answer it, keep the following points in mind as you think through the complexities of this scenario.

A Matter of Trust

It's obvious that if you're planning to share a home with someone, you should like them — a lot. You'll need to be comfortable discussing shared responsibilities and the amount of personal space and home upkeep that everyone is responsible for. You'll need to share similar tastes as far as home decor is concerned in most cases, as well.

In addition to being compatible, you'll also need to trust that your co-buyer is dedicated to sharing the home for the long haul. Is this someone who may decide to move across the country for work? You might agree on these things now, but you'll also need to trust your friend to uphold the bargain for many years to come.

An important aspect of buying with friends is that all parties must be completely transparent about personal finances — including any credit card debt — throughout the process. If that prospect unnerves you, buying with a friend might not be for you.

Sharing a Mortgage

Pooling resources means that you may be able to afford a bigger, better house in a nicer neighborhood, since additional income will be available to foot the bill. On the other hand, all individuals are subject to the bank's credit checks to determine the interest rate on the loan, so one partner's bad credit could be a major stumbling block. You'll also need to determine how to split the payments as well as how to make the payments on time.

All the details should be carefully negotiated and solidified in a contract. Because your real estate agent isn't a lawyer, each party may want to hire an attorney to work out the specifics — including what happens if someone needs to back out or sell in the future.

Be Prepared For Changes

Relationships tend to change over time.  You may buy a home with your best friend and everything is great for a few years.  Then one of you meets someone that you want to live with.  Maybe the romantic interest wants to have their own home rather than the one you share.  Or maybe one of you accepts a job in another State.  

Deciding what to do with the "family" home is challenging, even in the most amicable divorce.  Splitting up the home you bought with a friend can be equally challenging.  Before you buy you should be in agreement about what will happen if one of you wants out.  Options can include selling the home and splitting the equity.  You could consider finding a tenant who will cover the one partner's payments until you're both ready to sell the home.  Maybe you'll both move out and turn the home into an investment property.

You should explore the options and come to an agreement before you purchase the home.  It will make things easier when it's time to go your separate ways.

The Middle Way

If the idea of buying a house with friends appeals to you, but you're uncertain about committing to a shared mortgage or deed, purchasing a multifamily home in one buyer's name and renting the other unit to the friend is an option that some take — especially if having a renter lined up helps with securing the loan. You could also consider dividing the property into condominiums to formally separate the units of a single house into two homes. Again, consulting with a real estate attorney and your real estate agent is often crucial to structure an agreement that protects everyone. 

Buying a home with a friend can be a great way to get more bang for your buck, but it's a complex process. Be sure to consult with legal experts and run through several hypothetical situations with your potential co-buyer before diving in head first.