For Denise Delahunty, the adventure of co-owning a home with a friend ended badly with a disagreement over air conditioning.
Delahunty thought window air conditioners were just fine; the other owner wanted to install central air.
“It would have cost $8,000,” Delahunty said. “I didn’t have that kind of money to put into the house.”
The two had been long-time friends and roommates when they bought the house together, pooling their money so they could afford a place in Chicago, where they were living at the time. The arrangement worked well for five years, until, as Delahunty describes it, her friend got the itch to renovate. The two argued over the friend’s plans for the kitchen, the back deck and the basement. Central air was the final straw.
“I just couldn’t afford it and she didn’t understand,” said Delahunty, a 45-year-old pharmaceutical rep. “We just didn’t think about how our desires and finances might change over time.”
Delahunty now lives in – and rents – a home in Paramus. Her advice to others who might think co-owning is a good idea: “Go into it with your eyes wide open.”
Buying a home with friends is an option for those who want to combine their financial resources, particularly in an area such as North Jersey, where home prices are high and it can be too expensive for individuals to afford a home on their own. Combining finances makes it possible to get a bigger mortgage and allows co-owners to halve utility and other expenses of home ownership. And if they buy instead of rent together, friends can enjoy the benefits of mortgage interest deductions on their income taxes as well as gains in home equity.
Sharon Kendall, a realtor in West Milford, has friends who lived “happily for years sharing everything.”
Robert Slavin, a real estate attorney in Clifton, said he gets about a dozen cases of friends buying a home together each year. Other areas in the region, like Brooklyn, Hoboken and Jersey City, tend to see more twenty- or thirty-something friends combining their resources to purchase, he said.
“It can really help people get into a nicer home than they could afford alone,” Slavin said.
But there are issues to consider before going into home ownership with a friend, Kendall said. For one, if difficulties arise, a co-owner can’t walk away from the house as easily as they could break a rental agreement. If one of the owners wants or needs to move, the house will have to be sold – or worse, the other share may go to someone the remaining owner doesn’t want to live with. Marriages, babies, sickness, job changes and job losses can all wreak havoc on co-ownership.
For those who want to buy together, Kendall suggests a “house pre-nup,” that will outline the handling of finances and decisions about the house.
“It’s a great idea to sit down and prepare for all the contingencies,” she said.
Mark Webster, a Wayne real estate attorney, agreed.
“You have to figure out all the possibilities,” he said. “A job loss, someone falling in love and wanting their partner to move into the house, an argument when someone thinks the brick steps out front need overhauling and the other thinks a little patchwork will do. Talking about all of this in advance could save the friendship. It could also save the investment.”
Realtors and attorneys who have dealt with these situations say potential co-owners should:
Make sure both names are on the mortgage and the deed. The house should be bought as “Tenants In Common,” which will stipulate each purchaser holds a fixed share of the property. Under this arrangement, if one owner dies, their part of the house will go to an assigned beneficiary, rather than to the other owner.
Hire an attorney to prepare agreements about the property and the cohabitation. Putting everything in writing can avoid confusion – and disagreements – in the future. Such agreements can determine who pays what toward the down payment, mortgage and repairs. The accord stipulates how the appreciation will be shared and how the tax deductions for property taxes and mortgage interest will be divided.
The agreement outlines how issues will be resolved. “If everything is put to a vote, what do you do in case of a tie?” Webster said. “You need to know these things going in.”
The document also needs to cover what happens when one owner wants out, such as giving three-month’s notice or allowing each person the first option to buy out the other owner’s interest.
The co-owners should buy a term life insurance policy and name the other as beneficiary. In the event of death, the mortgage will be paid off.
Despite Delahunty’s experience, co-owning can be a great way for friends to live, said Marcy Sweet, a real estate agent in Rutherford. She said she helps a handful of friends each year purchase homes together.
“These buyers just need to be prepared,” she said. “Living and owning together is not really that hard as long as there’s lots of communication. But sometimes, when money comes into play, things get complicated.”
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