Can a group of friends buy a house together?
Between rising home prices, lack of inventory, and rising inflation, buying a home in the current market has proven challenging, especially for millennials. So many of us dream of home ownership, whether for a primary residence or a vacation home, but feel like market trends continue to put that dream further and further out of reach.
After a particularly restful vacation with your favorite cousins or a getaway weekend that brings the whole gang from college back together, you might start wondering, what if you could all chip in to buy a house together and do this more often? Is that even possible?
In short, yes. Buying a house with a group of friends is not only possible, but becoming increasingly popular. According to data from real estate analytics firm ATTOM Data Solutions, the number of co-buyers with different last names increased 771% from 2014 - 2021, a figure that’s only been accelerated by the economic impacts of the COVID-19 pandemic. Buying a vacation home as a single family might seem financially impossible, especially if you’re only able to use the home a few times a year. But when friends pool their finances, the cost of owning and upkeep can suddenly turn talking wistfully about that place in Mexico or Lake Tahoe that you’ll own “someday” into the home you can actually realistically own, for real.
The big question remains: how complicated is it?
Buying a house with a group of friends or family: the logistics
First of all, you’ll need to determine who you’re buying with and if your financial and future goals align. You can read further about the pros and cons of buying with friends and what it might mean for your relationship here.
Buying a home with friends is, of course, more complicated than buying as an individual or couple. While applying with a co-borrower can make it easier to make your down payment and get a loan (if, of-course, your co-borrower has strong credit), most traditional lenders will only approve loans with up to four borrowers. Some credit unions or smaller banks are willing to underwrite a mortgage for more than four applicants, but this is a case-by-case occurrence and you’ll need to check with your individual financial institution.
Another option for purchasing a vacation home as a group is through an LLC, or Limited Liability Company.
An LLC is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. It is used in real estate as a vehicle to buy and hold property investments and for fractional ownerships where co-owners can own a property where all parties are comfortable paying recurring fees to a management company.
When you buy a property with a group of family members or friends, forming an LLC can protect members of the group from liability if there’s a dispute or lawsuit, or if one member stops paying the mortgage or wants to sell. This is also convenient if you’re buying the property as an investment; the LLC offers protection from personal liability.
Managing your property and splitting time
Once you’ve determined how you’ll purchase your property, you’ll need to work within your group to determine how you manage ongoing expenses, how you furnish the home, and, if it’s a vacation home, how you equitably split your time amongst yourselves. As you might expect, these logistics can be some of the most challenging aspects of owning a home with a group of friends.
It can be beneficial to work with a real estate lawyer to draw up an operating agreement to avoid future disagreements and disputes. This document might include language around buyouts, how repairs and utilities are paid for, and how many weeks per year each member of the household is entitled to as part owner. You can also work with your lawyer to establish Joint Tenancy or Tenancy in Common, legal designations which determine what happens to the property if one owner dies.
Buying a Vacation Home Through a Co-Ownership Platform
Purchasing a vacation home with a group comes with myriad upsides: getting more home for your money, combining purchase power to make a larger down payment and avoiding PMI, spending more time with friends or family, and the potential to build equity or even earn rental income from unused time at the property.
However, as outlined above, there’s also a long list of financial and legal hurdles to overcome ahead of making your dream vacation home a reality. Kocomo is a co-ownership platform that can handle the hassle of not only purchasing a home through a joint LLC, but can also manage all the complexities of joint ownership, from taxes to insurance to managing rentals when you’re not using the home. Kocomo manages all elements of the property so that you can focus on your vacation.
Kocomo makes it possible for foreigners to seamlessly co-own in both Mexico or the United States. Kocomo even makes it possible to exchange time in your Kocomo home for luxury vacation homes around the world, through its partnership with ThirdHome. Feel like working remotely for a few months together? The WiFi will be running when you get there.
Read the full guide on how to own a house with friends and prepare to live one of the best times of your life.
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