Buying a home with Friends or Partner
Buying Home With Friends
In several parts of the country buying a home has become a very expensive dream. Society’s attitudes have changed about work, marriage, and children. Babyboomers graduated from college and settled down shortly after that and started young families which meant buying a home.
What Has Changed in Society?
Today’s Generation Millennials and generation X have delayed getting married and having children. Many experts pegged Millenials as a generation who would never want to own anything which isn’t true. Many Millenials and even some generation X had massive debt due to college loans and were unaware of a major recession that affected them getting a job and getting the salary they were planning on to combat the high debt. The sting of the recession for many lasted longer than prior adjustments.
Millennials now are entering the buying market. Millennials might not be ready to get married but want to buy with friends instead of renting with friends. The question Why do I need to be married to buy a home with someone? Why can’t I buy a property with a good friend or friends for that matter? Why can’t I buy a home with a partner I am dating long term? What is wrong with that? Why is someone trying to talk you out of buying a home with someone who isn’t family?
View buying as a business transaction
Buying a home with friends or someone more than friends can be a great thing or it can be a nightmare. Often it depends on how the people in the transaction view it. All parties should look at the transaction as a business transaction before the property is identified. The parties involved should have a serious discussion on where everyone wants to look, budget, timeline, but also what everyone’s expectations are of each other owning this piece of property.
Questions to think about
As many scenarios should be explored and discussed for example, if someone leaves the partnership once the home has been purchased. Other topics should be how each person views money and their credit history. How will the down payment be split? Will both names be the mortgage? Who holds the title? How will parties decide when and where to make repairs. Will the party who wants to stay in the home assume sole ownership and buy the other party out? If one party moves out and the other stays do the party who moved out still pay the mortgage and taxes or do they pay other things instead? When it’s time to sell how is fair market value determined? If one of the owners passes away what happens? Is there going to be a central Joint bank account where the money is deposit by both parties?
How one views credit and debt
Anyone who is thinking about buying a property with someone not married should have a lawyer draw up a contract. The contract should outline everyone’s expectations about who is responsible for what. Have that uncomfortable conversation about credit, attitudes about money, How much debt does each party have? Anyone your thinking about investing money together should know how all of this before applying for a mortgage. The truth about each person’s finances will come out sooner and later.
Anyone who is looking a buying or renting a home with someone should dig in and ask each other questions. How is your credit? Take note of how that person spends money. You’re going into business or investing in something together and both will be held accountable.
Have a difficult conversation about credit, debt before buying a home
I had a friend who met a great girl. He owned a condo that was the perfect size for him, but 6 months in he said hey let’s buy a place together. As a friend and agent, I started digging in asking questions and didn’t like the answers I was getting back. I said to him why don’t you guys rent first and if things work out buy. A friend said Nah thanks, but you don’t know her. Fast forward a few months they find a property and start the mortgage process. Cory found out the great girl had a lot of debt.
I said Cory why didn’t you ask the question of how your credit? Due to her high debt, the downpayment had to be higher. I rolled my eyes and said to him this is why you ask questions ahead of time. Had Cory known his partner credit wasn’t great he would have delayed buying a place and rented or stayed in his current place.
Eventually, Cory and his partner closed on the home, but since they never talked about finances shortly after the move they spent more time arguing about what to spend money on and how to manage it. They learned a hard lesson to ask the hard questions to each other before you move into a place together. In the end, they never should have bought a home together and the home is going on the market for spring.
Legal Documentation outside of Deed
It is also not a bad idea to ask yourself this question if there was no legal documentation do you trust your friend or partner would do the right thing? If you have doubts should you be buying a place together in the first place? Having a legal contract doesn’t mean you don’t trust everyone involved in the transaction, but it spells out expectations and holds all parties legally accountable from day one.
Taxes
The key is approaching buying a home as a business, not something personal. Many buyers buy the property and it’s personal and if you change your mindset and look at it as a business transaction you might find yourself asking more questions, taking more steps that protect you, and will generally feel you made a sound decision that protects your interests and everyone else involved. If you’re buying a property with a partner you might want to make sure you on all documents relating to the home.
In some states like Florida even if you married if you aren’t on the property even if you put money towards it if you’re not on the deed you walk away with nothing if the marriage goes south, Make sure your name is on the documents and know-how states view non-married parties. If you’re buying the place with friends or partners get educated on tax benefits and tax liabilities. If you all live there or if someone was to move out does that affect your taxes? Can you still claim a residential exemption? Does your state even offer a residential exemption? Are there tax credits you can take advantage of when you file your taxes?
Getting organized on day one
Talking to a local accountant is not a bad idea. An accountant can talk to everyone and make sure you’re setting everything up in the best interest. An accountant might suggest if you’re buying a home with friends that you might want to set up as an LLC or Trust. Taxes, public utilities like water, sewer, and trash, and operating reserves for repairs that come down the road.
Buying a home with friends or a partner can be a smooth transaction, but you need to get organized before you find the home. Think about items outlined in this blog you will find life is a lot easier later. Thinking about buying a place or have questions about this blog contact me.
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