Purchasing a Home with Friends

Some friendships are forged in childhood, while others are discovered during college or through shared workplaces. These friends may be as close as family, trusted confidants, and even vacation companions. But have you ever contemplated the possibility of sharing a mortgage with them? While you may have no qualms about revealing your secrets to your friends, have you ever considered joining forces to secure a mortgage together? It's not uncommon for friends to team up to acquire a second home or investment property.

At first glance, it appears to be a straightforward proposition. After all, you've already promised to be friends for life, so committing to a 15- or 30-year mortgage together should be a breeze.

However, even the most resilient friendships can be tested when it comes to shared homeownership unless both parties are adequately prepared for the challenges it can present. If you're contemplating the purchase of a second home with a friend, here are three crucial conversations you must engage in before taking the plunge.

1. How will you divide the costs? Unless you and your friend intend to buy the property outright with cash, you'll both be responsible for the monthly mortgage payments. However, dividing a mortgage is not akin to splitting a restaurant bill. It's imperative to discuss financial matters such as the down payment, closing costs, and monthly mortgage obligations before even embarking on a home search. Additionally, don't overlook ongoing homeownership expenses, including utilities, routine maintenance, homeowner association dues, and other services. Raise questions about potential scenarios such as plumbing problems, roof leaks, or other home-related issues. How will you apportion these unforeseen expenses that invariably come with homeownership?
2. What will you do if one party can't fulfill their financial obligations or wants to exit the mortgage?Any discussion about the potential costs of jointly owning a second home should be accompanied by a conversation about the course of action if one or both parties can't meet their financial obligations or wish to exit the arrangement. While this may not be as exhilarating as reminiscing about college escapades, it is an imperative discussion that must precede any joint home purchase. In the excitement of potentially acquiring a vacation home or investment property, it's easy to neglect to contemplate the potential drawbacks of shared home ownership. Financial hardships can befall anyone. It's prudent to have a plan in place before you and your friend find yourselves in an uncomfortable predicament. Will one party assume full responsibility for the mortgage payment? Will you be compelled to sell the property? It's essential to ponder the "what-ifs" before being thrust into a difficult situation.
3. How do you intend to utilize your new property? Once you've navigated the more challenging financial conversations, you can explore the exciting possibilities of co-owning a second home with your friend. If the property is intended for use as a vacation home, you'll need to decide how you'll split your time there, whether you'll vacation together or rent it out seasonally. On the other hand, if you and your friend are purchasing the second home as an investment property (or planning to rent out the vacation home), you'll need to create a rental agreement and establish protocols for dealing with tenants and their concerns. You'll also need to outline a strategy for marketing and maintaining the property to ensure it remains a worthwhile investment.

Are you prepared to engage in candid financial discussions with a friend? Are you also ready to navigate potential disagreements on the path to harmonious homeownership? If you've confidently answered "yes," then you and your friendship may be well-prepared to withstand the challenges of jointly owning a second home.