As homeownership gets more expensive, Millennials are getting more resourceful. The National Association of Realtors says the number of first-time buyers who bought homes with housemates doubled in 2019. It wasn’t a huge percentage, but some experts say it could be the future of housing — at least for people trying to buy their first homes.
NAR’s 2019 Profile of Home Buyers and Sellers shows that 4% of first-time homebuyers bought their homes with friends in 2019 compared to just 2% in 2018. (1) NAR’s Jessica Lautz says, “There are a lot of people looking at homes today and saying ‘I can’t afford this by myself. I’m (on a) single income… How can I get into a house?’”
She says Millennials are realizing that by finding compatible co-buyers, they’ll wind up with a more stable living situation that is also earning equity. By teaming up with co-buyers, they can pool their money for the down payment, trim their monthly mortgage obligations, and reduce the amount they spend on property taxes, insurance, maintenance, and repairs.
Realtor.com says the idea made perfect sense for Kelsey Perkins who’s a single mother with two children. (2) She was able to buy a five-bedroom house outside of Denver with another single mom and a third co-buyer. The home was big enough for their extended family, and they could split all the expenses including a mortgage that cost just $900 each plus one-third of utilities.
Perkins said of the deal, “What we could do collectively was much more than we could do individually.” She said, “It really made sense to us that if we were able to find a place that met everyone’s needs, we would be able to support each other.”
Choosing Your Co-Buyers
Choosing who you buy with will require some careful thought. As publishing company Nolo explains, “If you don’t fully think through the arrangement and set it up correctly, it could lead to financial and legal chaos, not to mention a damaged or broken relationship.” (3)
To help determine compatibility, you might want to discuss the household responsibilities, similar to roommates in a rental situation. Important considerations include: who’s responsible for collecting and paying the mortgage, who will oversee maintenance and repairs, what the rules will be for pets, houseguests and other visitors, and how you will decide on home decor and the buying of furniture. These arrangements are more casual than the signing of a sales agreement, but it’s a good idea to put them all in writing.
Once you have a compatible partner or group, you’ll need to decide on how you will hold the title for the home. The two main options are Tenants in Common and Joint Tenancy with Right of Survivorship.
With Tenants in Common, each co-owner has the right to pass his share of the home to someone else by selling it or by willing it to an heir. Nolo says it’s the most common way for co-buyers to take title but the surviving co-owners might end up sharing the home with someone they don’t want to live with. One way to deal with that would be to have a provision that gives the surviving co-owners the first right of refusal in the sale of the available share.
The Joint Tenancy with Right of Survivorship avoids this situation. If a person dies, that share goes to the surviving co-owners because they own equal interests in the home but not individual shares. That’s another difference between the two agreements. Tenants in Common can own unequal shares, but Joint Tenancy requires equal ownership.
Nolo also recommends that any co-ownership agreement includes an exit strategy for co-owners who want out. As with the death of a co-owner, that might include a first right of refusal clause in any sale. Nolo says it should also address other issues such as: How you would fairly assess the property’s value for a buyout, whether the co-owner who’s selling must accept the buyout offer, and what happens if the remaining co-owners don’t have the money to purchase the share that’s for sale.
It might sound like a lot of legalese, but there’s a lot of help on the internet for people who want to do this. One example is Home Buyers Unite. (4) The website offers a step-by-step process to help people co-buy homes. And it doesn’t have to be a home that you want to live in. You can set up a co-buying arrangement to purchase investment properties.
In addition to help with the co-buyer agreement, you might also get help with things like background checks, credit repair, financing options, and other advice. For example, you might need advice about a co-buyer with a low credit score. That could impact the interest rate that you get on your loan.
Leena Bella Mayor of HBU says that co-buying is not a decision to be taken lightly. She says, “Every deal will be slightly different, because the markets are different, the (buyers) motivations are different.”
Millennials may be a little late to the real estate game, compared to other generations, but they are finding ways to get in — and co-buying is one of them. Lautz feels that it’s a trend that is likely to grow and spread as Millennials move to smaller markets in search of more affordable homes.
(1) NAR Profile