Buying a house with your friend is a great way to get into the housing market in Toronto if you don’t otherwise qualify. We have worked with several groups of non-related buyers who purchase houses together and we have seen great and disastrous scenarios. Here are four things you should know before taking the plunge with your friend.
More than friends with benefits
Do you like your friend a lot? Great! Do you want to marry them? Buying a house with friends means intertwining your finances quite significantly. Beyond that, there are very few resources for you to draw on for how these expenses will be split up. You need the homeowner’s equivalent of a prenup agreement but you basically need to make it up yourself.
Know your exit strategy
Leaving is always the hardest part. How will you extricate yourself from the house if you need to? What if two couples buy a house together and one of those couples breaks up and needs to move? Make sure that everyone is Ok with selling the house whenever anyone else needs to before you agree to purchase a house. Is this a 5-year plan for you but a 20-year plan for your friend? It’s not going to work.
What is your equity?
Buyers rarely contribute the exact same amount of equity to a home. You need a long-term plan for how you will allocate the growth of the equity in the home. You also need a plan for the expenses of the home. How will they be paid and do they add to the equity of the home? If one couple undertakes a large renovation in their unit, does their share of the equity grow proportionately to the amount of money they invested in the asset?
Like any relationship, you need to initiate conversations early and often about expectations. Living with your friends and joining your finances is emotionally stressful. Everyone needs to be upfront about their expectations and feelings from the beginning.
Let us know if you want more advice!
As always, stay safe.
The Kim Kehoe Team