An increasingly popular option for home buyers under the age of 40 is to buy a house with a friend or partner. This option may work for those who are wrestling with the fast moving market and current home values in Denver but want to get started on their real estate purchasing desires. While the price of the average Denver real estate market has dropped a bit month over month since May 2023, Colorado is still proving a very desirable location and home prices reflect that. Thus, potential homebuyers who are looking to ease the financial cost may opt to buy and live with friends or a romantic partner. When buying a home with a legal spouse, there are certain benefits and legal protections such as co-ownership with survivors benefits. However, it’s different when buying a home with a friend or a significant other who isn’t a legal spouse. Protecting oneself legally is the most important thing to do when buying a home with a friend or partner. There are a few things a home buyer can do to protect themselves in this situation:
1. Joint tenancy and wills
By default, homeowners who are not related or married would be considered under the status
“tenancy in common” in Colorado. Married homeowners are typically considered co-owners, or joint tenants, as a comparison. Tenants in common share the property in equal shares, unless otherwise broken down. Also, unless otherwise specified, if one of the owners pass away then the share of the home is transferred to the next of kin and becomes part of the estate of this person. For example, a remaining parent may inherit the share of the home. In joint tenancy, if one of the owners pass away then the share of the home is automatically transferred to the surviving co-owner. Both people in either joint tenancy or tenants in common should consult legal counsel for a will to sort out any necessary legal details and have ownership in writing.
2. Figure out finances
There are a lot of things to consider when buying a home with a friend. Going through the home buying process means that both parties will be sharing financial records and with that, the conversation of money will likely come up a lot. Aside from being on the loan together, partners buying a home together will also need to figure out monthly bills and mortgage payments; not to mention the initial down payment on a home. Partners and friends should have detailed conversations to understand who will be paying what and how that will happen. For example, will there be a community bank account to pay for bills or will everything be kept separately?
3. Plan for an exit strategy
For friends who buy a home together, there may come a day when one needs to move out because of a relocation or getting married. In this case, some discussion should be had about what will happen in this situation. For example, one option is a buyout where the joint tenants may decide to refinance and remove one owner from the loan. Another option could be to sell the home altogether and split the profits equally. Of course, there are other options too that can be discussed with a legal professional.
4. Rent to friends instead
After looking at the process, some people may opt out of wanting to be on detailed legal paperwork and loan documents with a friend. In that case, a consideration could be buying the home alone with no one else on the loan and renting to a friend to generate extra income. In this case, friends can still split bills but the detailed legal paperwork doesn’t have to be an issue. This can also be an option in a romantic relationship, and should the status of the relationship change to marriage then partners can always refinance and be added to the mortgage.
What other advice would you recommend? Need a referral to an estate lawyer? Are you in the market to buy or sell your home? Call and text me at (720) 323-4176 or email me at [email protected]
