Should you Buy a Home with a Friend?

Forget the picket fence, spouse, kids, and a dog stereotype. These days, Millennials and Gen Xers are redefining homeownership. What was once an uncommon idea – buying a house with a friend – is gaining traction.

For many, rising home prices, stagnant wages, and delayed life milestones make co-ownership increasingly attractive. A 2024 Opendoor report found that 25% of first-time homebuyers didn’t buy alone or with a partner. Instead, they purchased with a friend (11%), sibling (7%), colleague (3%), or even someone they met online (3%).

If you or someone you know is considering such a significant purchase, it’s important to examine the advantages and disadvantages.

Weighing the Pros and Cons

Advantages of Co-Owning

Affordability: Skyrocketing home prices are making homeownership a challenge for many. Beyond housing costs, utility costs have also outpaced inflation in many states over the past several years. Therefore, more individuals are reluctant to take on all the associated homeowner expenses independently and opt to split ownership with a friend.

Investment and Equity Building: Combining your resources increases your buying power, allowing you to potentially afford a better home and start building equity sooner. This applies whether you buy with a spouse, business partner, or friend. Many people are choosing not to wait until marriage to invest in real estate. The money they would spend on rent or a security deposit can go towards a down payment and mortgage payments, building equity over time (assuming on-time payments and rising home values). You could also see a profit if you both agree on when to sell.

Tax Benefits: Whether you co-own with a spouse, domestic partner, sibling, or friend, you can still qualify for tax deductions and credits on mortgage interest, property taxes, and more. The split depends on ownership structure, who pays what expenses, and your tax filing status. There are also state-specific variations, but co-owning can still lead to a lower tax bill.

Disadvantages of Co-Owning

Potential for Conflict / Life Changes: Anyone who has had a roommate knows disagreements happen. Unlike a one-year lease, a home purchase is a long-term commitment. Discuss your plans openly – family planning, career goals, potential relocations, and personal taste preferences. While a downtown condo might seem exciting initially, your long-term vision might include suburban or rural living. What if one of you wants to sell their share or rent out a room? How would the other owner feel about that?

Legal and Financial Risks: Buying a home with a friend has inherent risks, similar to any investment. Think of it as a long-term business arrangement, not a casual decision. Homes require maintenance. Who will pay for repairs, from minor DIY projects to major renovations? You’re both on the mortgage together, so a late payment from one can hurt both credit scores. Even worse, if the home goes into foreclosure, you could both be evicted and lose money on the sale. These are all crucial things to discuss and agree on beforehand.

Your home is a major financial asset. Carefully consider all the factors involved before deciding to buy with a friend. If you’re considering co-ownership with a friend or are interested in discussing how real estate relates to your financial picture, contact us at Savant. We’re happy to help you navigate the process.

Source: Opendoor 2024 First Time Home Buyer Report