May 9, 2016

How to Buy with a Friend or Family Member

Homeownership is a rite of passage in Canada; most Canadians aspire to own a home at some point in their lives. There aren’t many life goals that compare to owning a home, aside from marriage, having kids, and retiring.

Real estate prices are higher than ever before. (I’m sure this isn’t news; it’s mentioned by media, including on this blog, very often.)

Many people are wondering how they’re ever going to get into the market.

This is why we’re seeing the rise of buying with a partner, whether it be with a spouse, friend, or family member. While there are plenty of people buying alone—nearly 1 in 4—there are many who require help to get into the housing market.

As a refresher, here’s what it’s like buying while in a serious relationship, either married or common-law:

• Married couple

When two people buy a home together, as married spouses, the home is called the Matrimonial Home, meaning ownership of the home is split 50/50. A prenuptial agreement can alter this split, if the couple desires it.

• Common-law couple

After 12 consecutive months of living together, the government sees you as a common-law couple. According to the Family Law Act in Ontario (with similar acts across the country), property you bring into the relationship remains yours if the relationship ends. If you buy while in a common-law relationship, the same rules apply to you as to married couples, unless otherwise stipulated in a legal document.

Buying with a friend or family member

Historically, romantic couples bought houses together, both moving into the home and sharing on the mortgage and living expenses. However, as relationships and family structures evolve, and the market becomes more expensive, buyers are changing their strategies.

It’s not uncommon to buy with another person; it helps to raise the down payment, and if the person moves onto the property with you, you’ll save on living expenses, from bills to home basics.

Be open and honest from the start

The most important point of advice when buying with a friend is to communicate. A lot.

Be open about your expectations and don’t spare any details. You want to be on the same page as your buying partner, so it’s key to flush out any underlying disagreements early on, giving time to correct problems or move on with other partners.

It’s easiest if you split everything 50/50—down payment, bills, expenses, everything. This will remove any resentment from the lesser investor for having less ownership in the house, and any resentment from the greater investor for having to spend more on ongoing costs.

Chat about anything, including:

• how you plan to split the ownership of the home
• the minimum and maximum price
• features you’re looking for, like number of bedrooms and amount of common space
• space division expectations, like if you need to have the master bedroom
• condo, semi, detached
• parking
• pets
• how long you want to own before selling
• a joint bank account for the mortgage and common expenses

Keep in mind that buying a home is complicated and could be the largest purchase you’ll ever make, so don’t rush it. Ask the important questions, have tough conversations, and get it all out on the table.

Write it all down

While it may seem like common sense, you’d be surprised how many people skip drawing up a legal agreement—like a cohabitation agreement, for example. It’s imperative that you talk with a lawyer and write down all the expectations you’ve agreed upon. If you’re worried about the expense, consider these points:

• If you don’t spend the money on a lawyer early on, you’ll spend it on a lawyer when you sell and can’t agree on anything. Your legal expense will be far greater if you leave it to the end.
• You’re buying a house. Just hire a lawyer and draw up the agreement. You won’t think about the cost later, and that small lawyer’s fee shouldn’t stop you from buying.
• If you know your buying partner very well, you still need to see a lawyer. Sometimes, those who are closest to one another can have the worst fallings out, so having your thoughts in writing just saves a headache later, no matter who you are.

Essentially, buying with a friend or family member just requires more thorough communication. You should be talking about these things no matter who you’re buying with, but two people who have nothing else but buying a property together need to be more transparent than ever.

Buying as a group

Lastly, there is a growing trend of buying with more than one other person, and there are clear benefits to this. You can save a larger down payment; if you get above 20%, you can avoid mortgage default insurance altogether, which is definitely a plus. You can afford a larger or better place, meaning more space or amenities.

The downside is just an amplified version of what we discussed above. With more buyers, and more people living in the home, you need more communication because you have more opinions. Be sure to set out a budget so no one is surprised once the purchase is final and you’re all moved in.

Unsplash: Breather