Buy a Home

Can’t afford to buy a Home? Consider Co-Buying.

With skyrocketing prices of property today, most individuals can not afford investments in real estate. That’s why more people are looking at pooling their resources with the objective of making investments in real estate. For young adults looking to start life on their own, or for family members wanting to capitalize on associated tax breaks, co-buying with friends and family offers a great option for making investments in real estate.

Brian Free did not have a large enough block of money for a down payment for a home. And neither did his friend. But they realized that by aggregating their limited resources, they would be able to make investments in real estate in a neighborhood that they liked.

Like any investments in real estate however, financial dealings between friends and family need to be well thought out and carefully executed. With some planning and a little bit of knowledge, there’s no reason why co-ownership of investments in real estate cannot be a success.

Make decisions about holding title

This decision will dictate rights related to investments in real estate around signing of legal documentation as well as transfer of property ownership in case of passing of one of the co-owner. For married joint owners, title may pass through tenancy by entirety or via community property. Title for investments in real estate by non-married co-owners can be handled as JTWROS (or Joint Tenants With Right of Survivorship) or via TIC (or Tenants in Common).

Difference between TIC and JTWROS

JTWROS is applicable if all co-owners have an equal share in the investments in real estate. When one of the co-owner passes, their share of the investments in real estate passes on to the other surviving owners. The sole surviving joint-owner will ultimately own 100% of the investments in real estate.

In the case of TIC, ownership in investments in real estate may be shared equally or unequally, as each of the multiple owners possesses a separate title to the real estate. TIC does not confer a right of survivorship, and therefore title in investments in real estate does not revert to the last surviving joint-owner. Instead, each owner of the investments in real estate may bequeaths his/her share of the property via a will, potentially resulting in the surviving owners sharing ownership of the investments in real estate with people they don’t know or like.

The law does provide for TIC investments in real estate to be dissolved, either by inter-owner buyouts, outright sale of the property, or a partition action by one owner to sell the property.

Similarities between TIC and JTWROS
TIC and JTWROS both confer equal rights when it comes to possession. In other words, occupancy and usage of the property is assured to each owner of the investments in real estate. And in the event that the property is rented out, both TIC and JTRPS entitles all a proportional share in rental income based on their respective percentage ownership in the investments in real estate.

Make a formal agreement before co-owning
When planning investments in real estate on a co-ownership basis, make sure the understanding between all partners is formally documented before making the transaction. While the thought of co-owning investments in real estate with friends and family members may thrill you initially, with co-ownership also comes the possibility of disagreements. Entering into a Co-ownership agreement before making investments in real estate will ensure all the rules are documented to cover any foreseeable disagreements.

At minimum, address the following 3 items in any Co-ownership agreement:

Determining percentage of ownership
In the case of JTWROS, each co-owner gets an equal share of the investments in real estate. TIC may have various options, including proportional ownership based on contributions towards the down payment to acquire the investments in real estate.

Decisions around regular property expenses
Investments in real estate will entail regular and ongoing expenditure – bills, taxes, repairs and maintenance. These should be clearly spelt out in the agreement, and can either be made proportional to each co-owners percentage of ownership of their investments in real estate, or can be based on a period of time that each owner agrees to spend managing the investments in real estate. Using a joint checking account to pay various charges and bills might be a great idea to simplify this aspect of joint-ownership.

What if one co-owner wishes to sell?
There is no legal requirement for co-owners in investments in real estate to sell their share only to parties approved by the other owners. However, clauses in the agreement can be built to allow other co-owners the right of first refusal in case one of them decides to sell their investments in real estate.