What are the Best Tips for Buying a House with a Friend or Family Members
With housing prices being out of reach for many buyers, some people are making the decision to partner with friends/family to buy a home together. I have found this approach to be an excellent way to ownership when it is properly set between all the parties involved. If you are a first time buyer or a small investor, it is a much easier scenario to share the mortgage and other expenses with other people. It is even better if you are able to purchase the property with cash without having to pay the bank mortgage interest for years.This scenario allows people who otherwise would not be able to afford a house to share expenses and achieve the dream of becoming first time homeowners or to buy that investment property you always wanted. This is definitely a very good option but how do you know if buying property jointly is the right move for you?
If you enter the arrangement educated and prepared, co-purchasing a home can be a great way to get your foot on the first step of the homeownership or real estate investing ladder.
It is important to remember that this is a business transaction, so you and your friends or family will have to approach it as such. You are going to have to have a very open, very frank conversation with your friends or family about their finances, their plans for the future, what to do if someone wants to sell, etc. If these are conversations you are uncomfortable having or you are worried about the effect they might have on your relationship, then buying a home with friends or family is probably not the right choice for you.
However, if you and your friends or family can come to terms, owning a home while sharing the burden of all the costs can help you build your savings while gaining equity in a home.
Here are some tips on purchasing a home with friends or family from the experience I have gained as an private investor and real estate professional:
1) Review your friends or family’ finances
This is most likely the largest financial decision of your life, so now is not the time to hem and haw on questions of finance. You will need to be aware of everyone’s credit scores, income, savings and any other relevant assets. It is important to make sure that you and your friends or family are financially prepared to become homeowners. The bank will ask for all kinds of financial information and not being prepared can determine your mortgage approval if you need one.
2) Decide How Payments And Costs Will Be Split
Questions to consider are how much each person will contribute to the downpayment and if that will affect how you and your friends or family divide the mortgage payments? Will the utilities be split evenly every month or will you alternate who pays? It is important that these details be worked out and understood by everyone involved before the home is purchased.
3) Decide On The Type Of House
Are you planning on buying a single-family home or a multi-family home? Do you see yourself sharing a kitchen and bathroom, or are you looking to buy a place where you will each have your own private residence?. You should also decide ahead of time on everyone’s must-haves for the home. Knowing that your friend will only buy a house with a big backyard or that they will not buy a house on a corner lot can save you a lot of time house hunting.
4) Get Everything In Writing
It is important that all of the co-purchasers keep written documentation of all of your agreements regarding financial and other responsibilities. So many people think that because they are dealing with friends or family that there is no need to write up a contract, but it can help you to avoid conflicts and surprises down the road.
5) Evaluate Your Team Goals
You are now investing in real estate. This is one of the biggest and longest investments you will ever make. It is important to make sure your expectations and financial goals match your partner’s as well:
Are you looking to flip the property?
Are you thinking of doing some remodeling?
Are you looking to reside on the property?
Are you thinking of holding the property long term, short term?
Who is dealing with tenants primarily?
What happens when repairs have to be completed?
Who is managing the books and payments?
What happens if there is a divorce?
What happens if someone wants to get out of this transaction?
6) Work with a Realtor®
Buying a home is an important decision, and whether you are doing it on your own or with a friend, using a Realtor® is a smart move. As a Realtor®, a member of the National Association of Realtors®, can provide counsel, discuss listings, show you homes in person, negotiate on your behalf and help you stay focused on the issues that are most important. Call me today to find more information - Diego Raigosa