Should I Buy a House with a Friend?

Sep 12 / Matt Gray, CFP®

Housing prices in much of the country have gotten to be RIDICULOUS! In 2000, the median home price was 4 times the median household income, and in 2022 the median home price is 6.6 times the median household income. Home affordability is at historic lows.

Luckily, we have human ingenuity to fall back on, like people buying houses with friends and other social arrangements. But is it a good idea to buy a home with a friend? Here are some considerations before jumping in.

Draft and Sign a Contract

I don't care if they are your "bestie," "BFFFL," or if you grew up playing football together. Get a contract that states the terms of the agreement and have all parties sign it.

Firstly, this makes all the parties consider the possibilities of what could happen. Some of the more common things I've seen are:

  • What if a renter comes in to a spare room?
  • What if a significant other moves in?
  • Does one owner owe the other one rent if one moves out?
  • Who covers expenses?
  • Is it owned 50/50 or some other proportion?
  • What if one owner wants to buy the other one out?
  • What if one wants to sell the house and the other doesn't?
  • What if one of us gets pregnant or has a kid?

More importantly, this document could very well preserve the relationship outside of the home. The last thing anyone wants is for friends to get into a he said/she said debate about the original agreement. This memorializes what was agreed upon and doesn't allow for reopening the discussion later when the potential event has occurred.

Ownership Structures

One of the more common ways to own a property is through Tenants in Common ownership, which means each owner has a beneficial interest in the property of a certain percentage. This ownership structure usually also requires unanimous agreement among owners to get anything done (remodel, sale, rental, etc.) because each person or entity owns a portion of the property.

The other benefit of Tenants in Common is that if one of the owners passes away, their share of the property goes to their heirs. The death of an owner might be a perfect example of something to include in the contract and what would happen in that instance.

It's also fairly common to see a home held through an LLC, and the LLC is owned, in part, by each party. This allows for a more formal separation of the property itself from the owners and makes things very easy to track. Talk to an attorney in your state about the legal benefits of holding property in an LLC or trust, but from a financial perspective, it doesn't make a difference.

Other Considerations

There are some additional considerations beyond the items above. Buying a house with someone isn't like finding a roommate because it's not simply living with someone. You may even decide never to occupy the house together! But this is someone or a group of people who will be financially tied together for years, more likely than not.
You and your co-owner(s) will have to make business decisions together and compromise a good amount to find fair outcomes. Emotions can get high with financial projects, and this one should not be taken lightly.

That said, if you find a person or group you believe can make this work, then go for it! It can be a great way to break into real estate when you don't have enough on your own. Just speak to advisors beforehand for help identifying your blind spots.

About the Author - Matt Gray is a Childfree Financial Planner who holds both the Certified Financial Planner® designation and the Chartered Advisor of Philanthropy designation. He enjoys working with his Childfree peers because he enjoys helping solve the specific needs of the Childfree community. Furthermore, he believes choosing a less traditional life path leads to more unique life stories and he loves helping those stories become a reality.