The low down on co-owning a home
I work with many buyer clients who can’t afford a home on their own, or may not wish to carry a home on their own. Many times they are short some money for their down payment, or their income is not high enough to secure money from lenders to finance the type of home they wish to buy.
By partnering with another buyer, or two, they can achieve their dream of home ownership with less investment and carrying costs than if they had purchased on their own.
It’s really important for all parties involved to openly discuss their intentions to make certain that every owner is on the same page.
Do you want to buy, renovate and flip? Great idea! Who is going to do the work? Who is going to manage the trades, select the décor and pay for it all?
It’s best to discuss the details of the renovation, including timing goals and budget, but also who will be the main contact for tradespeople.
Which partner is going to act as General Contractor and Designer? Underestimating the commitment of time or money required to get the job done properly and in a timely manner can bankrupt you and destroy a relationship.
If you’re living with the other person, it’s wise to decide on a chore schedule, the rules of cohabitation (food and booze are split 50/50 for example, or parking rules) and the consequences if one party fails to uphold their end of the bargain.
It’s never a good idea if one partner wants this to be a short-term investment and the other partner wants to hold the property for the long term. It’s never a good idea if two first-time home-owners think they are going to take on a renovation of any kind without any previous experience.
It’s also never a good idea to do this without independent legal advice.
A co-ownership has to be treated as a business deal from the very beginning. With this kind of partnership, both parties should sign a co-ownership agreement. You would agree to a number of terms and issues. For example if one partner puts down twice as much money as the other, will he own a larger share, and will he carry a larger share of expenses?
Let’s say Brendan and James buy a home together. They are two buddies who grew up together and they despise paying rent. They recognize that together they can buy a home and live there, build equity, share costs and responsibilities. It sounds perfect. What could go wrong?
None of us know what will happen to us in the future, not in six months or six years. Let’s say some time after they take ownership of the home Brendan wants his girlfriend to move in with him. That may be ok with James, but she will be using more utilities, so will Brendan pay the extra costs? Perhaps James’ enjoyment of the property will be eroded because suddenly there is another person living there and he is uncomfortable. What if he wants out?
How would that go down exactly? If they are registered as Tenants in Common (unlike most married couples who are registered as Joint Tenants) James can sell his ownership in the house without Brendan’s approval. Or, James could implement a clause that was in the cohabitation agreement that is similar to a shotgun clause. He notifies Brendan that he is going to buy him out, at a certain price, by a certain date. Brendan then has the option to buy James out with the same terms. Once you invoke the clause there is no going back.
It’s important for anyone considering a co-ownership to sit down with a lawyer and figure out all of the options, obligations and responsibilities with your "new business venture".
Take this seriously, proceed with caution and take your time, do your due diligence and craft a co-ownership agreement. Once everything is settled, and you’re sure it’s the right option, then you can go out and have fun home shopping!