As average home prices reach dizzying heights, homebuyers looking to get in the market over the next two years are considering co-buying with their friends.
Despite houses across Canada hitting an average of $508,567 in March, a 15.7 per cent spike from March last year, the volume of homes set an all-time record with 41,357 changing hands via the Canadian Real Estate Association’s Multiple Listings Service.
And Canadians don’t have any plans of shying away from the red hot markets with 43 per cent of 18-to-24 year olds saying that they are considering purchasing a home in the next two years, according to the 23rd Annual RBC Home Ownership Poll.
In fact, one in four millennials say they’d consider buying a home with a friend.
“They look at the market as an attractive opportunity for them, they want to be home owners, they want to participate in the market and so they’re thinking ‘how do I do that’ because the cost of entry is challenging for them,” Erica Nielsen, vice-president of home equity finance at RBC told Yahoo Canada Finance.
While co-buying can seem like a good solution to these challenges, it’s not without its own set of logistics, some of which may be more of a concern for friends purchasing together compared to a married couple.
“There has to be open form of communication about what is important in that purchase choice – what are the critical things we need to have? Is it about location or investment and selling? Because those can be different things,” says Nielsen. “(Communication is key) for all home purchases where there’s more than one decision maker, but I think it gets exacerbated in situations where the partners aren’t spouses.”
In other words, you don’t want to be down to the wire on making a bid and realize you have a huge discrepancy in what’s important to each partner.
David Lee, a financial advisor at BlueShore Financial in North Vancouver, says he agrees.
“You’re building the foundation of a partnership with this purchase, right?” says Lee.
To kick off the partnership, he recommends each stakeholder visit their financial institution and see what they qualify for, especially if they’re hoping to tap into financing.
“You’re going to have to work with an institution that understands what you’re planning to do,” he says.
Use this as a time to review finances and then lay out everyone’s credit scores, monthly income, down-payment portions, extra savings accounts and retirement funds. Transparency is vital.
Then, says Lee, you get that partnership, all the goals, financial commitments – who contributes what to the down payment, to the mortgage, to real estate taxes and home repairs – as well as how to resolve any disputes that may come together surrounding maintenance costs and put it into a legal document.
“What you don’t want is to get co-buyers to a place where one feels really financially strapped and the other one doesn’t – then you have a mixing of tensions,” says Nielsen.
And finally, have an exit strategy.
“What happens if you have different goals?” says Lee. “Things change, maybe one partner gets married or have kids – are you flexible enough in the partnership? And what does that look like? Does one person buy the other person out?”
All these considerations need to be kept in mind and written down on paper in legal document form.
“Keep up regular dialogue against that agreement so you can plan for these things,” adds Nielsen. “There needs to be open dialogue.”