Should I buy a house with my friends?
That is a very topical question.
As real estate prices continue at record highs, it is becoming more and more common for buyers to explore co-owning a property to get into the housing market. While this can be an appealing idea and does have advantages, it’s a big decision that requires a lot of careful consideration.
I would like to begin by clarifying that joint ownership — also known as co-ownership — typically refers to two or more people purchasing a home together to live in. This is not to be confused with fractional real estate investing, which allows individuals to buy shares in a property they do not plan to occupy continuously or at the same time.
While some families have opted for joint home ownership in the past, what we’re seeing now due to the lasting competitive market is a rising trend in friends and acquaintances buying houses together to share, and to start building some equity in the housing market. If you are thinking of entering joint ownership of a home with someone other than your spouse, there are some key factors to be mindful of.
For starters, I suggest you leverage the expertise of a real estate agent and a lawyer who can help you determine which type of ownership may work best for you and those you plan to co-own with. While the terms “joint tenancy” and “tenancy in common” recognize each of you as owners, they have their own implications which you will need to understand.
Ask your lawyer to give you strategic advice about structuring an ownership agreement that spells out how a sale by one or more co-owners can work. In some cases, ownership through a corporation or trust may be best.
Carefully consider how joint ownership may affect your lifestyle and your wallet, as well as that of the other co-owners. I recommend that you work through some scenarios together and have an honest conversation about your preferences and expectations to confirm that you are all on the same page before finalizing the home purchase. Open communication and seeking advice from knowledgeable and accredited experts can help set you up for success. Here are some questions to help you get started with that discussion:
- What if one co-owner stops paying their share because of unemployment, illness or death?
- How will utility bills and property taxes be paid?
- How will decisions about renovations or major repairs be made if you don’t agree?
- How will costs be divided for renovations, major repairs, and other unexpected expenses?
- Does one co-owner have the right to trigger the sale of the property?
- Can one co-owner buy out the other(s) with consent? If so, at what price? Alternatively, is there a way to buy out other co-owners if there isn’t mutual consent?
It is inevitable that things will change, and that the property will eventually have to be sold. You need to be clear about how that will happen when the time comes.
Finally, speak with your accountant to learn more about which form of co-ownership will minimize your tax exposure if the property is not going to be your principal residence.
If you have a question for Joe about the home buying or selling process, please email email@example.com.
This column is for general information purposes only and is not meant as legal or professional advice on real estate transactions.Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.