Is buying a property with a friend a good idea, whether to live in or rent out or flip? What do you need to put in a contract if you and your friend buy a house together? Read on for top considerations when purchasing a home with your best friend, girlfriend or boyfriend, or a casual acquaintance.
The real estate market has been hot in places like Hampton Roads and beyond, and properties seem to fly off the market the moment they are listed. Amid all of that chaos, many people are still trying to break into real estate investing: but can't afford it alone. Having a friend partner up with you and invest in a property together is one way to get more house for your money and gives you a chance at securing a larger loan.
But is buying a house with a friend a good idea?
If you're considering purchasing a property with a friend, consider each of these steps to make sure you're making the right decision. This could be a great alternative to buying a home - depending on how you handle it.
Buying a House With a Friend: The Financial Upfront
If you’re interested in buying real estate with a friend, there are many ways to obtain financing. A typical mortgage will be tied to both individuals credit & financial position. So, it’s a good idea to choose an investment partner who makes around the same income as you and can invest as much money and time as you. This will make sure that both of you have an equal stake in the home and that one person isn't being taken advantage of.
Before looking at properties, discuss your individual financial positions, how much you’re willing to spend together, how much the monthly costs should be, what type of down payment you can agree on, and how quickly you want this process to go. Starting on the same foot financially will give you the chance to have a healthy partnership.
Is this a good year to buy a house at all? Here’s our advice to buyers this year.
Treat the Home Purchase as an Investment
If you’re buying this property together as an investment, treat it like one. Your friend is your business partner in this, and they’ll have to work with you on everything from figuring out the cost of a mailbox door repair to deciding which school district the home should live in.
Make sure you trust and know your business partner. If you wouldn't trust them to buy a decent property on their own, or if you feel like you'll have to supervise them through the whole process of flipping or renting it out, your partnership is already starting on rocky ground.
Tour Properties and Make Decisions Together
Once you’ve downloaded your favorite home-buying apps, don't jump the gun and tour any properties alone. Even if it means you have to have your friend on a video call, tour the spaces together. This will allow you to come to your own conclusions about the importance of insulated concrete forms or updated safety features and whether the property suits your needs.
Even in a market as competitive as 2022, don’t feel pressured into buying a property that you aren’t both excited about. Make a smart and sound decision when you finally buy a house with your friend.
Pay Attention to House Condition and Needs
When touring a property together, take all of the care you would if you were looking at a home for yourself. This means looking for window replacement inserts, updated roofing, or anything else that might need to be done.
The more work that has to be completed on the property, the more time and money you and your friend will have to spend to get it up to speed. Before you go touring properties together, figure out how much work you are willing to put into any given property or if you want a turnkey space.
Communicate Clearly and Be Honest
Clear communication is as important in business as it is in friendships. You need to be able to speak plainly and honestly with one another the moment anything happens. Conflict is inevitable at some point, whether for something as small as disagreeing on a paint color to as large as who will collect rents from month to month.
Set communication standards up front. Take the time necessary to make smart and safe decisions, and work together to decide on anything you're unsure about.
If, when leading up to the purchase, you start to notice communication issues, don’t be afraid to back out before you’ve closed the deal. Be completely aware of who you’re going into business with, and make the best decision possible. Purchasing a house with a friend is a big investment!
One great conversation to have: make sure neither you or your friend are falling for these home-buying myths.
Ensure Duties are Evenly Spread
Although this may seem obvious, it’s worth mentioning: if you want the team to stay happy and for neither party to end up resenting the other, everything should be split fairly. Although it would be best if money and time spent were evenly split, talk through options that work for you. If one person can't devote as much time adding value to the home but can devote more money, and the other can devote more time and less money, discuss if that trade-off feels fair to both you and your friend.
Whatever balance is decided upon should be put into writing and signed. Although this can feel silly, especially if you are buying property with a friend whom you explicitly trust, it's a vital step that can save you from the emotional struggle of deciding what to do if your business partner stops pulling their weight and you can't afford that board and batten siding on your own.
Recruit a Third-Party Expert
When purchasing a home with a friend, it’s more important than ever to work with a real estate professional you can trust that will offer an outside perspective. Being able to turn to the expertise of a third party will help minimize conflict and help you to make unbiased decisions. Collaborating on a property purchase is a great time to use a real estate consultant because they prioritize honest communication and can help clarify your mutual goals.
The Bottom Line:
Buying a property with a friend can be challenging but can also be a creative way to buy a home or start investing in real estate. Before you buy a home or investment property with your friend, be sure to clearly communicate and do your research before moving forward.
This post was coauthored by Ryan Shure. Ryan is an editor for the Innovative Building Materials blog and a content writer for the building materials industry. He is focused on helping fellow homeowners discover materials and ideas that save money, improve energy efficiency, and increase property value.