In a challenging residential real-estate market with low supply and high demand, more buyers are looking to co-ownership — be it with friends, family or an investment partner. Not only does this allow buyers to pool their resources, it gives them access to home options that may not otherwise be available to them if they were to purchase on their own; the ability to build equity sooner; and the opportunity to invest in a higher-priced home. That’s why we’re rounding up what to consider prior to purchasing with others, and what the rewards are in doing so.
The Rewards of Co-Buying
Co-ownership takes many shapes — it’s popular among parents and young adults; aging parents and grown adults; significant others; and friends. No matter what stage of life you’re in, it’s a great way to get your foot in the real-estate door and it’s definitely more common than you think. In fact, 3 – 5% of all home purchases across the globe involve friends buying together. Even the number of co-buyers with different last names increased by 771% from 2014 – 2021. The whole concept aligns with the rise of “the sharing economy” that’s taking the world by storm, driven by top-performing companies like Uber, WeWork and VRBO. Now with external resources like CoBuy and Shared Home Ownership being established, it’s clear that co-buying isn’t just a trend or a hot topic right now, it’s an international movement that’s here to stay for the long haul.
When it comes to seeking financing, there’s plenty of advantages that co-ownership provides. Currently, it takes a median-income household approximately eleven years to save for a standard deposit — and that’s if they’re able to put aside 15% of their income each year. But for people who are single, it could take double that time. With co-ownership, it’s easier to secure a down payment and there’s less pressure on one individual’s income. Cutting a cheque for $30,000 is doable but cutting a cheque for a portion of that feels that much more achievable. Co-buying allows you to diversify — you can put $100,000 into one project, or $50,000 into two. If the choice was yours, which would you choose?
The point is that co-buying is just another way to invest in real estate. If you have $200,000 sitting around, great — but if you only have $25,000, there are ways to start leveraging that. Find people who are like-minded and are on the same page as you because now that the market is becoming more challenging to get into, it’s about getting your foot through the door and partnering with people to accomplish your first purchase.
Start With a Talk
Now that you’re familiar with the benefits of co-buying, it’s important to discuss your goals and prepare for any unforeseen circumstances. Before you scour the internet for properties or call a realtor, consider the following questions with your co-buyer.
- What are your short-term and long-term objectives with this purchase?
- Are you planning to live in the unit or use it at a rental property instead?
- If you’re planning on renting, who will decide on the tenant?
- If you’re not each other’s significant other, how will your personal relationship change your homeownership situation?
When you’re making a mutual purchase with your co-buyer, it’s important that you remain mindful and respectful of one another. You’re entering into a partnership so make sure that there’s strong communication between you and your partner(s). When you start renting, repairing or managing the property, there will be questions that you have to come to an agreement on. Ensure that everyone is on the same page — not just with the present, but with the future as well. Before purchasing, it’s important to answer the questions above so that you have a clearer picture of what joint ownership will look like for you.
Swap Credit Scores
The terms of your mortgage will most likely be calculated based on both co-buyers’ credit ratings. Your credit report is a very important indicator of your financial health; it contains a full history of how you’ve paid your bills, how much outstanding credit you have and how responsible you are with managing loans. Before you purchase, swap credit scores with your co-buyer, which will give you an indication into whether you should enter into a joint investment. Credit scores offer no indication of someone’s financial situation, but offer information on how they’ve handled loans, instead — insight which is vital to your decision to buy with them.
Put Your Plan in Writing
A neutral third party, like a lawyer or other mediator, can assist you in putting your plans in writing, including how long both parties will have to commit to owning before they can sell. A lawyer can also help you keep track of the percentages that each party owns in the event of an uneven split. This ensures that the party who contributed more is protected and won’t lose out in the event of a quick sell or another unexpected situation. The cost of maintenance or other monthly expenses is also important to address. All in all, reach an agreement that makes both parties comfortable and put it in writing so that there’s no confusion. This will kick your co-buying experience off on the right note.
Finance It Responsibly
If you trust your co-buyer enough to split the mortgage payments among yourselves, say from a joint account that you both contribute to, great. However, you may consider a Mixer Mortgage, which can be split into multiple parts, such as one variable part and one fixed part. In many situations, mortgage payments can be made separately and can be split to reflect the specific percentage of the mortgage that each party owns. Some mortgage lenders will even accept two separate applications from each co-buying party, so that one person’s financial details or sensitive personal information will not be disclosed to the other co-buyer. The key is finding a suitable arrangement that works for all parties.
Check-in Often
Twice a year, particularly if you don’t actively see your co-buyer, sit down to discuss your shared investment. Perhaps property values have skyrocketed and you’d like to consider selling sooner than you thought, or your co-buyer wants to move out and rent their share of the property. Yearly maintenance to keep the place running smoothly should also be discussed, as well as any other upcoming events that will require both buyers’ attention. These discussions should be in addition to frequent communications that you have with your co-buyer and are key to a great co-buying experience.
Where to Purchase
If you’re considering co-buying a property, it’s important that you evaluate where to purchase and that your choice reflects what’s important to you. Builder reputation, location, as well as price are all things that investors should consider. With 25+ years of experience and over 28,000 homes to our name, Empire Communities is a trusted homebuilder that is dedicated to building communities you’ll love. Three of our newest communities, Longreen, Zephyr and Stein Steel, are located in close proximity to the Atlanta BeltLine, bringing you closer to the city’s best restaurants, shops and entertainment. With curated amenities, diverse home designs and public transit nearby, they offer investors everyday conveniences that other Atlanta communities may not. Don’t miss out on these fair-market-investment opportunities that offer plenty of opportunity for growth.
Check out Empire’s other communities, here.
*Empire recommends those who are considering co-buying to consult with a lawyer to discuss their particular needs and circumstances.