Entering into a legal contract with a friend is risky. Any parent or advisor is likely going to tell you that. If you’ve brought up the subject of buying a house with a friend to others, chances are they’ve given their input and it may not have been wholly supportive.
Admittedly, there are definitely some pros and cons of buying a house with a friend. Despite the risks, this may be a worthwhile investment if you have absolute trust in this lifelong friend. Plus, you can work together with a real estate agent to ensure this transaction goes as smoothly as possible. The agent will help you find a great house to buy, while your sale will help the agent earn a generous commission. Many real estate agents have used commission advances to increase the flexibility of their earnings, so they will take the time to help you find the best house possible.
Below are the twelve pros and cons of buying a house with a friend:
Pro: You Get Financial Help
Buying real estate is a risk for anyone. It’s an investment that could be rendered valueless in the most unfortunate circumstances. For the initial buy-in and any subsequent costs in upkeep, you have another person to lean on.
Con: You’re Relying on Someone Else Financially
Even though this is a pro, buying a house with a friend is also a con because he will cover a part of the financial responsibility. If your friend stops paying altogether or misses a payment altogether, your lender doesn’t care. It will reflect on you. A friend ignoring their responsibility hurts you and could prove very damaging to your long-term financial health.
Pro: It’s Fun
Although there’s a lot of responsibility wrapped up in buying a house with a friend, those who do it do so because it’s fun and they enjoy it. It might not always be smooth-sailing but even so, romantic partners buy homes together every day. For some friendships that have sustained a decade or years, homeownership becomes simply another chapter in the relationship.
Con: You Need Their Approval
When you own a property with someone else, you give up the decision-making power. Everything’s split 50-50, unless otherwise noted in your buyer’s contractor. Either way, the other person gets some say in how to manage the property.
This can lead to compromises you don’t necessarily want to make. It’s hard giving up control of such a large investment. On this alone, it’s enough to prevent most people from entering into a real estate purchase with someone else.
Pro: It’s Easier to Qualify For a Mortgage
Though not a guarantee, you may find it easier to qualify for a mortgage when you’re applying with a friend. Normally, a lender would only take your credit and income into account. An application for two people means a lender will consider your combined credit and income. Applying with the right partner could mean a more affordable mortgage.
Con: Dispute Without a Contract
If you buy a home with a friend and without a clear written legal agreement in place, you are creating a risk. If something falls through with the house or if you run into problems, a legal agreement should outline who pays for what. Think things like property taxes, maintenance, and repairs.
Pro: Your Monthly Expenses Are Lower
Sharing the burden of the finances with someone else, your monthly expenses on a property are cut in half. The result is a better month-to-month scenario for your wallet. We strongly recommend taking a part of this free budget and setting it aside in a savings account for unexpected events. As expenses come up, chances are you will be better prepared to handle them because of your savings.
Con: Romantic Partners Can Complicate Things
A lot of us are going to one day get married. If you or your friend meets someone they enter a romantic relationship with, they may want to move in. Alternatively, you or your friend may wish to move out to move in with said romantic partner. Things can get complicated as time passes and the initial benefits of buying a house with a friend start to wane in favor of a future with someone else.
Pro: It Can Help First-Time Buyers
In markets like Toronto where the buy-in for first-time homeowners can be irretrievably out-of-reach, buying with a friend gets you a way in. If you commit to each other to invest and sell in three or four years, you can both walk away with your investment and more. Then, your legal contract’s done and you can both move as independent homeowners.
Con: What If They Want Out?
Things can get messy if you or the other person suddenly decides they want to not own said property anymore. Disagreements on when to sell and for how much can persist. Although compromises and results are always arrived at, this can irreparably damage a friendship.
Pro: More Expertise
Incidents or events sometimes come up in homeownership that you don’t necessarily need to outsource. When you partner with someone else, you get the benefits of their financial support and knowledge. Certain maintenance or repairs are immediately shouldered with another person.
Con: It’s On You If You Don’t Do Due Diligence
It’s not enough that your friend is kind and funny. You shouldn’t invest in a property with them if they don’t have a decent credit score or are unwilling to share their credit report, do not have income, or have a lot of current debts. This is creating a financial risk for you, carrying on a mortgage you potentially cannot afford.