February 22, 2023

Should I Buy a House With Friends?

Getting together with friends to buy a house will enable you to become a homeowner sooner than expected. However, this project has as many pros as cons. Here are some points to ensure a smooth jump into the real estate market.

Factors to consider

What the house will be used for
Determining in advance the purpose of your combined homeownership project will help avoid surprises and misunderstandings. Roommates can buy and live in a house together or a group of friends can invest in a recreational property (like a cottage) that they can all enjoy and rent out.

Consider everyone’s finances

It’s important to talk about money openly and honesty. Everyone involved must lay their cards on the table regarding income, savings, the down payment, loans, credit card debt, credit rating and expenses. With a joint mortgage, each person is legally responsible for paying the monthly mortgage payments in full. If another co-owner does not pay their share, you will be liable for payment as well, even if your share is paid. Use this discussion to set the budget as well as how much mortgage you can afford.

Consider everyone’s long-term goals

Before embarking on a real estate project with friends, you should know their future plans. Do they want to sell the house in a few years? Will they want to buy your share?

Pros and cons

Buying with friends can allow you to buy a house sooner than you planned. Even so, since you are no longer the only one to call the shots, all decisions will now have to be taken jointly. You will have to make compromises and work out your differences when there are disagreements.
By pooling resources, you will have a larger down payment and a more affordable mortgage payment for your budget. This will undoubtedly result in greater purchasing power. You will be in a better financial position to purchase the house. However, you need to start thinking about what will happen if you sell the property at a future date. Being prepared ensures peace of mind.
The project of sharing a house with friends can be exciting, even a dream come true. However, a disagreement could seriously damage your friendship as well as your credit rating if a co-owner does not pay their share.

Instructions for a smooth transaction

Splitting the property

Two choices are available. First, joint tenancy means that the property is divided equally between all co-owners. In the event of the death of one of them, the house remains divided equally between the remaining owners. You could also opt for tenancy in commonwhere each homeowner owns a separate share that is not necessarily equal to the other shares. For instance, two co-owners could hold 25% each while the third co-owner holds 50% of the shares. With tenancy in common, you can divide ownership according to each person’s contribution.

Draw up a clear agreement

It is highly recommended consulting a specialist, such as a lawyer, to draft a letter of agreement so that all terms and conditions, expectations and each party’s responsibilities are clearly set out. It is important even if you are good friends. Your friendship will only be better protected. It is a prudent move to maintain a good relationship between friends and a clear and open partnership. Include points such as who will be able to use the property, can it be rented out, the division of costs, what happens if one of the owners wants to sell their share, and so on.

Be properly insured

It is important to protect your investment with home insurance. Every co-owner should also have mortgage insurance – which usually combines life insurance and critical illness insurance.

Tightly manage finances
Ideally, you should meet regularly to discuss finances (payments, necessary renovations, etc.). In the event of late payments, quickly intervene to find a solution so that everyone’s credit score is not too badly affected.