For most single people who rely on their single-income, buying a house may take a longer time than those who are married or have multiple streams of income. As of late, one of the popular options for single people is to buy a property with their friends. On paper, this may sound extremely straightforward and convenient.
Buying a property with a friend means that you’ll be buying a property with someone you truly trust and know. On top of that, pooling your finances with your friend will give more borrowing power and therefore, allowing you to have a bigger chance of buying a house sooner instead of just relying on your own finances. Sounds fairly simple, right? But research and experts are more inclined to say otherwise which is why we’ve listed down some of the things that one must consider before purchasing a property with a friend.
Joint Tenant vs. Tenancy in Common
The main argument against buying a property with a friend is your finances. Buying a property with a friend can either mean that you are joint tenants or have a tenancy in common, both with their own downside.
A joint tenancy means that you and your friend are considered as one entity. This limits your rights to the property in the sense that you cannot make decisions regarding the property without your friend’s consent; you cannot sell the property if your friend does not want to as well as share the property with anyone whom your friend does not approve of.
On the other hand, a tenancy in common explicitly indicates the division of shares of the property. In this situation, you have exclusive rights to your share of your property as well as your friend. The downside to a tenancy in common is its advantage as well; since your friend has exclusive rights to his shares, she may decide later on to transfer her shares of the property to someone you may not like which will then force you to stay in the contract with someone you do not trust.
Another downside is that if you do decide to apply for a joint mortgage with a friend is that legally, you are considered as “jointly and severally” liable; this simply means that if your friend is not able to fulfill his end of the mortgage, your are liable to make up for his shortcoming.
Division of Responsibilities
Other than the mortgage, buying a house with a friend will still have other financial responsibilities such as utilities and maintenance. Try to have a thorough breakdown of the expenses and discuss with your friend the responsibilities when it comes to these things in order to avoid conflicts in the future.
Change of Mind
Another risk of buying a property with a friend is the possibility of one changing his mind and deciding to buy a different property eventually. This may be troublesome if you are in a joint mortgage and will limit either of you for future property purchases.
Giving Up the Property
Unlike renting an apartment with a friend, should one of you decide that he wants out, you cannot simply exit the contract and move to a more affordable apartment. Although you may be able to replace the names in the mortgage by selling the property or through refinancing, both of these options will require a lot of time and effort from both of you.
Whether you decide to purchase a home with a friend or choose to stay patient until you are able to afford a house on your own, be sure to plan, do your research, and consult a specialist to best prepare yourself.