Purchasing a home with your friends might seem slightly unorthodox, but it’s actually more common than you think. After all, there are plenty of reasons why friends would make the decision to room together. Higher cost of living plays a major factor: the majority of Americans cannot afford a home right of college, and aren’t yet positioned for a double-income household that comes with a partnership.
Some friends are even investing in vacation rental properties or weekend homes together. One New York Times article profiled two long-time friends in their 50s who decided to purchase a vacation home with one another. Both friends played equal role in purchasing the home, and each make monthly contributions to a household account delegated for emergency repairs, renovations, and other miscellaneous household products and services.
Another article in BBC profiled two couples who combined their families to purchase a six-bedroom home together. By pooling their resources, they were able to score a much better location and a home with better amenities.
Co-buying can not only offer access to properties you wouldn’t have had, but also give you a leg up on mortgage and interest rates. And one survey found that the majority of millenials were willing to take out a mortgage with family or friends if it gave them a foothold on the property ladder.
Whether you want to save money or generate revenue, there are plenty of ways you can have a great experience living with the people you enjoy being around the most. But of course, purchasing a home with a friend isn’t always an easy thing to do. There are several steps and precautions you should take when you’re making a long-term housing commitment with a friend. Here are some tips to get you started:
Discuss How Bills Will Be Paid
There are many costs associated with owning a home. From maintenance to property taxes to homeowner association fees, these are all costs you might not initially think about that you should list out to decide who will handle which bills. Before you even begin to start searching for a home, this is a discussion you should have. You should also consider unforeseen costs, like a roof leak or emergency plumbing situation.
Talk About an Exit Strategy
Chances are, you won’t want to live with your friend forever. Because of this, an early exit strategy is a good discussion to have. An exit strategy should cover two scenarios: what happens if one of us can no longer pay, and what happens when one is ready to leave. In some cases, you’ll both decide to leave the house at the same time.
Regardless, although this is never an easy conversation, it’s a candid talk that’s necessary. This will help ensure confidence as you move forward with your plans. Talking about uncomfortable situations will allow you to be better equipped when unfortunate circumstances or new life changes arise. Your exit strategy should also detail how much notice you’ll require from the individual, as well as the buyout options available for the remaining owners.
Everyone has different lifestyles. If you’ve never lived with your potential co-owner, you could risk clashing lifestyles that could cause house turmoil and stress in the house. Consider signing a year lease on an apartment or subletting before you commit to a home if you’ve never lived with the person(s).
Traveling together is another great way to gain valuable insight into how a person lives and handles various trying situations. For instance, you might not want to live with someone who smokes often or tends to be on the colder side during warm months—a thermostat war is that last thing you want in your home. Small things end up being bigger things when you live together, and ironing out these details help create a more seamless transition.
Share Financial Details
As previously mentioned, there may come a time where your friend cannot afford to make a payment. Unfortunately, you may not be able to cover them each time a situation arises, and late payments and missed mortgage payments could negatively affect both your credit scores.
Transparency and trust are major must-haves here. You’ll need to be submitting important documentation about your financial situation, and it’s good to go over these private financial details so that everyone involved has a high-level overview of what to expect. Share credit reports and take the time to analyze those important details.
Get Everything In Writing
Purchasing a home involves plenty of paperwork and legal jargon. However, in addition to the necessary paperwork conducive to purchasing a home, it’s also important for you to have private legal contracts between you and your housemates—it’s best to get a lawyer to help facilitate the process. Each of the hard discussions mentioned previously require much more than just a verbal commitment. A contract lawyer ensures all the details are smoothed out, and helps everyone be more comfortable with the arrangement.