It's 4 pm on a Monday, and you get a phone call from a 27-year-old who wants to buy a house with a friend. You quickly try to think of the ins and outs of a co-buying transaction. If this is your first time dealing with a co-buyer situation, it's time to prepare yourself for the trend of co-buying a home. Take a deep breath, shake off the nerves, and put on your superhero cape because you can do this! Let's look at how to handle real estate clients who ask, "how do I buy a house with a friend" or "how do I buy a house with my parents."
How does co-buying a house work?
Co-buying a home is when a property is purchased and owned by two or more people. When co-buying, the owners don't have to be married to buy a home jointly. Co-owners could be friends, cousins, co-workers, etc. What is the best part of co-owning a house? No more renting, and co-owners can start building equity.
When you have clients wanting to co-own a home, you'll want to share two types of shared ownership options with your clients. They'll need to know who will hold the title to the house and have ownership rights. The following shared ownership types illustrate the rights of each owner:
Tenancy in Common
Tenancy in Common (TIC) is most popular with business partners or those who aren't married. With TIC, the co-owners do not have to divide shares in the property evenly. Instead, they might decide on a ratio that closely matches the amount each individual invests in the house. TIC also gives each owner the right to designate who will inherit their shares should they pass away. In other words, rather than their share of the home going to the other tenant(s), it goes to their beneficiaries.
Joint Tenancy With Right of Survivorship
Joint Tenancy With Right of Survivorship (JTWROS) is most commonly used by married couples. With JTWROS, co-owners divide home ownership shares equally, regardless of how much individuals invested. If one of the owners passes away, the surviving owner(s) automatically receive the remaining shares, hence, the right of survivorship.
Duplexes may be an excellent option for clients wanting to co-own a property. They may want an investment property where they can live on one side and rent out the other for passive income. Providing co-homeownership options will make you stand out as the go-to real estate expert.
"Since you want to co-own a house, have you ever considered a duplex? You could live on one side of the duplex while renting out the other to help pay the mortgage. Is this something you'd be interested in?"
If you're looking for first-time co-buyers, look for renters. In 2020, 38% of all home buyers previously rented an apartment or a house. NAR, 2020 Generational Trends Report
Who are Potential Co-Buyers?
The following groups are some of the most likely to co-buy a home:
- Millennials: Millennials make up the largest group of first-time home buyers, and, as couples, they are waiting longer to get married but are living together. Focus your marketing on 26-41-year-olds (& a bit older) and use the social media platforms they use. Many millennials are co-buying a house with a friend, relative, or partner.
- Renters: Renters should be a priority when looking for co-buyers, as they made up 38% of all home buyers in 2020 (NAR). Rent is expensive; many would rather co-own a home and earn equity.
- Multi-Generational: Listen closely to real estate leads who want to buy a house with family, as they may fit the co-buyer category. They may want to buy a house with a relative so they can take care of aging parents or get help raising their children. In 2020, 12% of all home purchases were multi-generational buyers. (NAR)
- Parents with Adult Children: Some adult children may want to buy a home with the financial help of a parent. Non-occupant co-buying is when someone buys into the property without the intention of living there but wants to provide financial support to the other co-buyer. In some cases, the non-occupant will provide enough money to cover the down payment, and the other co-buyer will pay monthly on the mortgage. Non-occupant co-buying is typical with a parent and adult child.
In a 2021 survey by CoBuy, most co-buyers (31%) planned to buy a house with a mixed group, like a couple with a relative. 25% said they planned to co-buy a house with friends, 24% with family only, and 10% with only their partner.
Credit Score Considerations
Frequently, co-buying clients are surprised to learn that the person with the lowest credit score determines the interest rate on their mortgage. If their credit score is especially low, be prepared to offer solutions to improve their credit score before buying a home.
The main perk of co-owning a house is the owners get to live more affordably by splitting the down payment and mortgage payments. Co-buyers can also share the cost of utilities and expenses related to maintenance on the home.
There are drawbacks to co-owning a home, and your clients need to be aware that if one owner cannot pay his share of the mortgage, the other owner will be responsible for paying it. Also, one co-owner might be faced with a new roommate because the other co-owner has the right to rent his portion of the property without permission from the other co-owner.
You can thrive as a real estate agent by representing leads interested in co-buying a house. Couples are getting married later in life, young adults want to buy a home with the help of their parents, and some people want a multi-generational house they can co-share with a relative. Please take advantage of the variety of opportunities to represent co-buyers as they look for their first home. Growing your sales funnel with co-buyers will bring your real estate business to a new level.