Co-buying isn’t just for the GG

Introduction

First of all, who doesn’t love the Golden Girls? These pioneers showed us the way to what it would look like to co-habitate and create a sense of community with our friends and loved ones!

What is co-buying, exactly?? Co-buying is defined as two or more unmarried people buying real estate together.  Most commonly, we see romantic partners or relatives, but includes people who want to share a home or just co-invest.  The occurrence of friends buying homes together is on the rise, and co-buyers now represent 31% of all transactions in the USA.

 Why Co-Buy?

For many people, the top reasons include:

·      Community

·      Stop Renting, build equity

·      For some people, co-buying is a mid-term strategy to move into becoming a single home owner, and for others, it’s the end goal.

There are so many great aspects to co-buying, and there are a few things which require a little forethought for this type of process.  I’ve outlined this in such a way to present all respective co-buyers with discussion points to address with one another. The following is not an extensive list of all the questions to ask yourselves, but rather a place to start. Besides your pre-approval, this is a necessary step before you start shopping.

 Co-buying with your friends or family is a dream, and it’s a really good dream…. but, you need to be strategic so you can collectively get the thing you want.  

What matters to you?

If you are considering co-buying, you will need to ask yourselves some very direct questions regarding money, legal ownership and responsibility ---  a number of people find discomfort or even (false) shame in openly talking about money and finances.  If you are one of these people, I would like to challenge you to openly have these discussions with your friends with whom you are thinking of co-buying.  A lot of us try to avoid more difficult discussions, but it seems that much of the goodness in our lives is based on clear communication.   As you are taking the step to co-buy with a friend, in one manner, you are also merging your finances with them.

You are meeting challenges head-on to achieve a greater goal, taking care of yourselves, and your collective interest.  You wanted to co-buy because you are friends --- I’m sure you want to keep your friendship intact!

I’ve broken this down into 3 distinct phases:

1.        Getting In (Buying)

2.        Staying In (Living in the property and caring for it)

3.        Exit Strategy (If or when you decide to make a life change)

And, finally, accounting --- how do the co-buying parties account for money, labor, updates or any variations in the home buying, ownership or selling process?

Getting In Phase (Finding and buying the right property)

·      Who has a job? Are both parties leaning on one party’s income more than the others for qualification purposes?

·      How Is your credit? Is one party far more credit-worthy than another person in this purchase?

·      Who has a down payment? Closing Costs? Buyer Agent commission? (If not covered by the seller).

·      How much is each party contributing? Is it equal, or different?

·      Where do you want to live?   Specific areas/neighborhoods?

·      What is of highest importance?   The more ‘favored’ neighborhoods/better condition/bigger lots will be more expensive.  If you are constrained by price, then you will need to make concessions in either condition, or location.

Staying In (Now that you moved into your amazing new property, you will need to care for it)

·      You need to discuss a maintenance plan:

·      What is the plan if you have a capital expenditure? (Roof, sewer line). Will there be a maintenance fund? If yes, will you both contribute to it monthly/quarterly/annually? Some people are fine with just addressing these if/when they arise. However, it doesn’t hurt to have a plan, especially if you are budget-minded!

·      What about if you buy a duplex and only one side has an AC, or better/different appliances? Will one party pay more mortgage for the more updated unit?

·      Will you be paying different amounts of money relative to your income?

·      What if one party loses their income?  The mortgage is due in total to the lender, not in fractional installments.  Who would cover for the financial shortfall?

·      If one party will be doing work on the property (let’s say one party does yardwork) is this off-setting part of the cost of the mortgage?

·      What about major renovations?

·      As an example, if you are buying a dupex, do you assume that if one unit is smaller than the other, that both parties will still pay an equal amount?   Or, do you pay the % of the property you occupy?   (example; one side of a duplex has 2 bedrooms and the other side has 3 bedrooms).

Regarding co-buying, any arrangement between the owner parties is acceptable. It doesn’t have to be a black and white 50/50 split. It could be 40/60 or 30/70, or anything else you find to be reasonable and acceptable. The most important aspect is that responsibilities are understood, and the arrangement works for all parties involved.

Unexpected Assumptions 

At the beginning of this article, I mentioned this is a list to start from, but each situation is personal and unique to the circumstances of the co-buyers involved. You are never going to be able to think of every question or possible scenario.  However, the more co-buyers are able to reach mutual understanding or reach agreements ahead of time, the easier the process will go. You need to be open to having these types of conversations – some today, but also tomorrow and in the future. The concepts below are more details to consider, and might not be examples for your exact situation, yet still valuable food for thought:

·      Do you assume that one party will pay more of the mortgage? 

·      It’s ok if you strike an agreement where one side contributes less money or ‘time’ into the property, but it needs to be addressed in order to resist any confusion or frustration.

·      When the facts change, change your mind and your process

·      Also, there are life events ---  we make choices based on what we know today, but we don’t know what we will face tomorrow.   Have the conversations when things AREN’T hard, so it won’t be overwhelming to face and discuss.

·      What if a new person/life partner moves in? 

·      What if one side decides to move and rent out their side of the duplex? Who is responsible for managing that side of the duplex?

·      What if there are major life changes? (new family, illnesses, death, loss of job, etc)

Exit Strategy (How to exit the property - sell or buyout)

·      What if only one of the parties wants to sell?

·      What if both parties want to sell?

·      How do we (the co-buyers) deal with appreciation and mortgage paydown?

·      If the parties have contributed different amounts of monthly payment, capital improvements, etc, how is this accounted for at the time of buy-out or sale?   Is it split 50/50  or based on what you pay into it --- which could change the split to something else.

·      If you bought a duplex, what if one side is more updated than the other?

·      What if you want to build an ADU?  Who benefits financially if only one party has paid into this?

·      If you bought a duplex, what if one side wants to have renovations, and there is a large disparity between the quality of the two units? Do you split the equity equally at time of sale, or does the party who did the renovations reap those rewards?

·      How do you want to approach this?

Accounting

Whatever agreement you come to, it doesn’t have to be a protracted and exhausting experience.

 ·      You can sit down and do an accounting once a year to account for updates, financial considerations or remodeling.

·      You can do this any way you like, you just need to have your own metrics for assessment and accounting. It may not hold a lot of personal meaning to the owners during the ownership process, but I’m sure it will be very important to each of you if you ever have to sell or cash out.

·      You can collectively set your own terms and conditions.

At the end of the day, I believe the benefits of housing security are immeasurable. If going the ‘traditional’ route is not an option in the present moment, (or just doesn’t sound like fun), I still want people to achieve homeownership and housing security in a way that best serves their own unique lives.

If this is something you and your friends, family or loved ones are considering — reach out to me, I want to connect with you! I look forward to guiding you through the complexities of the real estate world, making your dream home a reality and making the experience both enlightening and enjoyable.