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A friend in need. A friend in deed. How to co-buy a home.
Purchasing a home with a pal or roommate can be a great financial strategy — if done right.
After graduating from Wentworth Institute of Technology and renting a series of apartments, Tyler Provost decided it was time to invest in a single-family home not only to live in, but also to serve as an investment property that he could fix up and ultimately sell.
But with the high price of housing in Greater Boston, he was advised to do so with a partner. So, in 2015, Provost teamed up with his college roommate. They pooled their funds and purchased a seven-bedroom home in Jamaica Plain for $680,000, putting down 3.5 percent and financing the balance with a Federal Housing Administration mortgage. The house, built in 1900, was split into two units, so the new owners lived in the side with four bedrooms and rented out the other, a three-bedroom unit. Then they started fixing up the property with an eye toward selling at a profit.
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“We decided to pool funds because we both were handy and had a bit of experience with construction and home renovations,” said Provost, now 34 and a general contractor and managing partner of Accelerated Pools in Westford. “Plus, our funds, when pooled together, fetched more value than they would have independently.”
Although Provost admitted to being “terribly unprepared and very green,” the investment was a success: He and his roommate sold the property in 2021 for $1,300,000.
Driven by the high cost of housing in Greater Boston — the median sales price for a single-family home increased 8.3 percent in July to a new record of $910,000, according to the Greater Boston Association of Realtors — as well as the tax advantages of homeownership and the opportunity to build wealth, friends and roommates are increasingly opting to combine their resources and purchase homes together. In large cities like Boston, many people already are sharing their place with a roommate, so taking the next step and co-buying, or purchasing a home together, is widely accepted.
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“If you’re going it alone, you can probably come up with a 3 or 3½ percent down payment, but if you each have 5 percent, it puts you in a better bargaining position,” said Mike Sokolowski, a broker with The Agency in Boston.
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According to LendingTree, one reason why co-buying is gaining traction is because homeownership is increasingly out of reach for many Americans, so buying a home with someone other than a spouse or significant other is seen as a way to achieve that goal. A recent LendingTree survey indicated that 29 percent of Americans would be open to co-buying a home with someone, while 57 percent would consider purchasing one with a good friend or roommate.
“We’ve seen an uptick in non-relative lending,” said Bob Driscoll, senior vice president and director of residential lending for Rockland Trust Bank in Hanover. “Boston is unique because you have a large college presence and a lot of people who have roommates, so they have an embedded relationship already. We’re seeing that trend filter into homeownership.”
But there are numerous details to consider before entering into a long-term investment with a friend or roommate.
Have a written agreement. Hillery Dorner, a real estate attorney with Dorner Law & Title Services in Concord, recommends putting everything in writing, from who pays for what, what happens if one person wants to improve the house and the other doesn’t, who can occupy the property, and, most importantly, an exit strategy if one person wants to move out or sell. “I always recommend that while they’re still friends they go through the exercise of thinking about these potential problems and putting it all in writing,” she said. “So, when something does happen, things can be worked out easily.” Dorner said there are two types of written agreements: a cohabitation agreement and a joint venture agreement, the latter of which is more commonly used for investment properties.
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Pay attention to the title. Unmarried co-buyers who haven’t formed a separate legal entity like a corporation typically take title either as tenants in common or joint tenants with right of survivorship. With the latter, the survivor automatically owns the entirety of the property if the other owner dies. With a tenancy in common, a deceased owner’s share goes to the heirs, so the survivor could end up co-owning with strangers who have a very different vision for the property. Consulting a real estate attorney before moving forward with a joint home purchase is key.
Understand how a joint purchase can adversely affect your financial situation. The underwriting standards used to qualify co-buyers are similar to those used for married couples. Income and debts are added together, the appropriate ratios are applied, and the lender makes a decision. But bear in mind that co-buyers have joint and several liability, which means either party can be held liable to pay the entire amount of the mortgage. That means that if you purchase a home with a friend, and that person loses their job and can’t pay their share of the mortgage, the lender can — and will — look solely to you for the full payment.
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Most importantly, don’t let the transaction destroy the relationship you have with your friend or roommate. “In retrospect, the investment and construction phases could have gone poorly, but, fortunately, we were always able to communicate and surmount any issues,” said Provost, who did not have a written agreement with his roommate. “Getting into business together didn’t sully our relationship but changed it and strengthened it in many ways.”
Robyn A. Friedman has been writing about real estate and the home market for more than two decades. Follow her @robynafriedman. Send comments to [email protected].
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