How To Buy a Home with a Friend

Decide who pays what. Before you sign the contract on the home with your friend you need to look at who is putting what into the home. Ideally you want it to be a 50/50 split, but if it isn’t, you need to know who is putting in more. You also need to factor in things like maintenance, mortgage payments, insurance, taxes, and other costs and decide beforehand what percentage each person is going to pay. This way you will know what percentage each of you are entitled to should you sell the house later on for a profit.

Consider buying as ‘Tenants in Common.’ Buying as tenants in common means that each tenant will have an undivided interest in the property. This gives each tenant an equal share of any tax benefits and capital gains if sold for a profit. It also allows for one tenants share of the home to go to their heirs in the case of death and not the partner. This is unlike a married couple, where the share would automatically transfer to the surviving spouse.

Create a contract. It is vital that you and your friend create a contract to address the many issues that could arise when owning the property. What if your friend has to move away due to a job or gets married and decides to leave? This can be addressed in the contract and usually requires the partner who is leaving to give several months notice and to give the partner who is staying first right of refusal to buy the interest in the home or find another partner to do so. You can also address the issue of what happens if one partner doesn’t come up with their portion of the bills. This is usually addressed in the form of a lien. The point is, if you don’t have a contract, you or your friend could find yourself stuck.