Buying a house with friends or family members may seem like a good path to homeownership, especially when facing high real estate prices.
One group may decide to all live together, while another chooses to co-own, but some of the owners live somewhere else. In any case, it remains important to weigh the pros and cons before going ahead.
The Advantages
1. Bigger Budget
By pooling your financial resources and splitting expenses, you can buy a larger home, one in a better location, or one that will appreciate more in value than you could afford on your own. This applies not only to the purchase price, but also to municipal taxes, maintenance costs, and renovations.
2. Easier Access to Ownership
Securing a mortgage is often easier when several people combine their incomes. And since everyone contributes equally to the downpayment, each person only has to save a smaller amount.
However, having multiple buyers can also hinder the purchase process if one or more of them have significant debts or a poor credit history. The bank will analyze everyone’s income and debts and base its decision on the application as a whole.
Financial security advisor and owner of Groupe Financier Symbiose
3. Shared Maintenance
Maintaining a house requires time and effort. With co-buying, tasks such as cleaning, dealing with bills, and mowing the lawn can be divided between the several owners. This only constitutes an advantage, however, if they all live in the residence and participate in its upkeep.
4. Group Investment
Over the long term, the value of the property could increase, offering each co-investor an attractive return on investment, which might also serve as a step towards future property independence.
The Disadvantages
1. Potential Disputes
Co-ownership can lead to disagreements: decisions about renovations, sharing unexpected costs, or how common areas should be used (if everybody lives together in the residence). Discussing these details in advance and making sure everyone sharing the property is on the same page is essential.
2. Legal Complexity
Co-ownership entails specific legal procedures. You will need to draw up a shareholders’ agreement stipulating the rights and responsibilities of each party, which can prove costly and sometimes more complex than a standard notarized contract.
3. Financial Commitment
If a co-owner decides to leave the project or can’t pay their share, the others will have to bear this shortfall.
Keep in Mind
In the eyes of the financial institution, each borrower is 100% liable for the entire debt. If, for example, one person fails to pay their share of the mortgage, the others will have to cover the full amount.
It should also be understood that a co-owner may only withdraw from the project if all the others qualify for the loan (and can thus afford the mortgage despite that person’s departure). It’s something to think about carefully, since you won’t necessarily be able to walk away whenever you want!
4. More Challenging Resale Process
Selling a house with multiple owners can be delicate if views differ regarding the sale’s timing or asking price. One owner’s desire to purchase the property from the other co-owners may likewise complicate the process.
This is why signing an agreement detailing how this type of situation is to be handled beforehand is imperative.
Advice for a Successful Real Estate Co-Purchase
- Communicate Openly
Before you even start looking at properties, discuss your common goals: Why do you want to buy together? What are your long-term plans? How long do you want to keep the property? Make sure everyone agrees. “Before you begin the process, each person should lay their cards on the table and disclose their income and debts. This kind of information is crucial to know, because you’re embarking on a major project together,” says Cynthia.
- Protect Yourself Legally
Any verbal arrangements you’ve made must absolutely be put in writing. Hire a notary or lawyer to draw up a shareholders’ agreement stipulating the distribution of ownership shares, financial responsibilities (mortgage payments, bills, etc.), sale and withdrawal procedures, etc. “Don’t hesitate to ask a notary for advice. They can, for example, suggest the inclusion of certain special clauses adapted to your situation.”
- Open a Joint Account
Establish a joint account for household expenses (maintenance, renovations, etc.) and contribute to it regularly and fairly. This will ensure that necessary work can be carried out without straining any of the investor’s finances.
- Carry Out a Financial Simulation
Ensure that each co-investor is sufficiently financially stable to bear their share of the costs, even in the event of unforeseen circumstances.
- Make Sure Everyone Has Life Insurance and a Will
It’s vital that everyone have life insurance covering their share in the property and designating the other co-investors as their beneficiaries. Without life insurance, the investors could find themselves co-owners with the deceased’s heirs, which can cause problems, especially if the heirs don’t have the income to pay for their share or aren’t yet born!
