Should You Buy a Home With Your Friends? Experts Weigh In
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The idea of the "American Dream" very often involves the concept of owning your own house. It was an established part of my life growing up: My parents owned our house, both sets of my grandparents owned their own houses, my friends' parents owned their houses. Though this definitely isn't the case for everyone in the United States, it was something that was deemed normal to me. However, in case you've missed it, things have drastically changed with the housing market since the late 1990s and early 2000s.
Headline after headline states what we all know to be true: There is a shortage in affordable housing. "We have a housing affordability crisis on our hands," Austin Allison, co-founder and CEO of Pacaso, a luxury second home co-ownership platform, tells House Beautiful. "The housing crisis is more pronounced in some markets than others, but generally speaking, it's very hard for people to be able to afford to buy homes on their own." Though there are more empty homes in the United States than there are unhoused people, according to United Way, the price of real estate continues to skyrocket, and the idea of purchasing my dream house (that somehow has a wrap-around porch and a conversation pit and an atrium—what can I say, your girl dreams big) has fled further and further away.
Then my friend posed an interesting idea last summer: "What if we just bought a home together one day?" I was immediately taken with the concept—although no one in our friend group is in the place financially to purchase a home right now, we could get there a lot faster by going into it together. And I'm obviously not the only one intrigued by this concept: I'm not sure if my friend saw something in the news that I missed or is possibly psychic, but purchasing a home with someone you're not romantically linked to is actually on the rise, according to Opendoor, Zillow, Pacaso, and more.
Pacaso's data shows that there's been a 21.1 percent rise in co-ownership in general across the country. While Pacaso has historically only focused on splitting the ownership of vacation houses, they've recently announced they're opening up their services to the broader co-ownership platform because of the rate at which this idea is growing.
"77 percent of first-time homebuyers bought their home with someone else," Bryson Taggart, agent partnership manager at Opendoor, says according to the company's findings. Here's the breakdown: 61 percent of that group are buying with someone outside of a spouse or significant other, followed by parents (16 percent), friends (11 percent), siblings (7 percent), colleagues (3 percent), and someone they met in an online community (3 percent). "Millennials are often the ones looking for alternative strategies for funding a home and are really leading the charge for redefining traditional homeownership," he adds.
If, like my friends and I, you are also interested in buying a home with someone else, I've broken platonic co-ownership down to the studs. Ahead, you'll find the pros, the cons, and the how-tos to help you determine if this is the right decision for you.
Benefits of Co-Buying a Home With Friends
The biggest perks of co-buying a home are of course financial. "Co-buying is an innovative and cost-effective path to homeownership, especially for someone who might not have the liquid cash for a down payment on their own," Taggart explains. "Co-buying helps homebuyers buy now, securing an affordable place to live in the present while setting up an investment for the future," Taggart says.
Opendoor reports that 41 percent of first-time homebuyers are driven by investment opportunities. Whether or not the co-owners who took part in these studies decided to buy a property together to then immediately rent it out, or bought a home and are going to live in it together before then renting it out, the investment idea is one to keep in mind if you, too, are interested in c0-owning a home.
The general benefits of sharing a home come into play as well. "Owning a home is a hassle, and in the case of a primary home, when you have two or more people that are using the home together, you can sort of distribute the workload of home ownership among those people," Allison says. Plus, there is a slight sustainability aspect to it. Rather than each buying your own home from the existing stock, sharing a place can be a better use of environmental resources. Rather than two houses running their AC units, for a small example, you can have one house running one AC unit.
In addition to the financial and environmental benefits, one of the biggest pros for me personally is being surrounded by my community and support system. I won't lie, the idea of a hippie commune (not cult) where there's a loving community of people who all help each other out and support each other excites me. I'm not a huge fan of individualistic culture—I want to be part of the village. This idea, though definitely romanticized in my head right now, would potentially give me that dream.
Risks of Co-Buying a Home With Friends
Like with the benefits, a lot of the risks revolve around money. Money can be taboo topic, and if you're purchasing a home with someone else, you're going to have to talk about your personal finances. "I hope you're really close with these people because you're going to find out each other's credit scores, if somebody missed a payment on a phone bill—you're going to find out all that information about each other, so you better be close," Liz Arenberg, a real estate agent at Compass, says.
Besides simply looking into your potential co-owner's finances, you're also going to have to figure out how to split both the money and the workload, which can be a huge point of contention. This is where the more negative aspects of the human condition come in. Who's going to be in charge of calling the required maintenance person when issues arise? What if you disagree on what needs to be repaired? What if you disagree on the design style? Are you going to open a joint bank account for home-related costs? What if someone loses their job or—knock on wood—passes away? Though it's not done on purpose, selfishness and possible greed may come out in situations like these, especially revolving around money.
"[Opendoor] found that nearly half of first-time co-buyers argue—a few times—about their purchase," Taggart says. "The more people involved, the more compromises to be made. On average, they had four arguments over the course of their home search process."
Although navigating these issues won't necessarily be an easy or fun process, it is doable if you have a plan in place before signing the papers.
How to Co-Buy a Home
So, let's get into the plan. Arenberg recommends immediately contacting a local real estate attorney to understand the regional laws surrounding homeownership and set up protections for yourself and your fellow co-owners. Once you've decided to co-buy a home, you'll want to figure out how the mortgage is going to be paid, how repairs are going to be handled, and address those morbid questions and worst case scenarios to figure out what you would do if each possibility arose. With the help of your attorney and even your realtor, get it in writing what you would do with your co-owner if they passed away or could no longer afford their portion of the payments. It's also a good idea to get it in writing how long you both agree to own the house before the topic of selling can even come up—maybe give yourselves five years before having the resale conversation—and agree to an exit plan before it comes up naturally.
After the real estate attorney, Arenberg suggests talking to a mortgage lender to map out how financing this project will look, then getting a pre-approval for a loan. It's easy to want to skip this step, especially if you hyper-fixate on your spending, because you know how to work an online calculator and may think to yourself, "Oh, well I know how much I can spend." However, Arenberg often sees issues with these situations. "Those online calculators aren't incorporating local taxes into where you're looking and things like that, so you could be thinking you can spend $300,000 more than you could when you're actually having to dial that way back."
Generally speaking, once those details are worked out, you're both happy with the potential situations that could arise, and you've acknowledged the fact that the human condition has both good and bad aspects to keep in mind, then you can go through with the process.
Would I Still Co-Buy a House?
I'm not saying this is a solution I necessarily want to take, but I—and a good number of other younger people—truly can't see another way out of the renting woods. Sometimes, a changing of perspectives is required to thrive, and unless the deed to a gorgeous house in the city I love suddenly arrives in the mail, then I can't imagine being able to purchase a home by myself, or even with just my partner, at 29 like my parents did.
I would still greatly consider co-owning a house with my friends and living in it. I think if you can get past the stressful details, it could be a fun way to meander through life that also saves everyone involved some money. As Allison points out, co-buying homes is not at all a new concept, but it is one that is growing, so now is the time to put it on your radar and seriously consider the prospect.
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