Jeff Clabaugh | October 27, 2021
To handle the rising costs of ownership, some Americans are buying a home with a friend or roommate. The percentages are still low, but the National Association of REALTORS® does report an increase.
In the second quarter of this year, the share of homes purchased by roommates rose to 3% of all buyers, up from 2% a year earlier. The trend has been increasing since the pandemic.
Home prices have risen by double-digit percentages over the past year. Buying and saving power can increase when you partner up to buy.
Still, purchasing a home with a roommate or friend may require some ground rules to be set and foresight to prevent spats later on.
“Certainly if someone does partner up in a romantic relationship and wants to move out, or that partner wants to move in, you suddenly have a house of three,” Jessica Lautz, vice president of demographics and behavioral insights at NAR, told WTOP News. “Or what if one person gets a job on the other side of the country, what happens to that property?”
Other questions to consider, Lautz adds, are will both buyers contribute to the down payment and closing costs equally? Will they agree to earn equity equally? Are the rooms in the home the same size or who will get which room?
Those who purchase with a roommate or friend may want to put all these items in writing and have them addressed with a legally-binding, attorney-drafted agreement before making a home purchase together, Lautz notes.
Buying a house with a friend or roommate? There’s a lot to agree to
Unmarried partners often buy a house together, but there has been an increase in friends or roommates buying together as well, and for those buyers, there is plenty to work out ahead of time.
Home purchases by roommates are still a small fraction of total sales, but in the second quarter of 2021, their share rose to 3% of all buyers, up from 2% a year earlier, according to the National Association of Realtors in D.C.
NAR cites a couple of likely reasons, including a drop in marriage rates and people getting married later but not wanting to miss out on homeownership, and, with home prices so high, the significant increase in buying power and saving power two people have.
It might be a good financial arrangement, but there are a lot of “what ifs.”
“Certainly if someone does partner up in a romantic relationship and wants to move out, or that partner wants to move in, you suddenly have a house of three. Or what if one person gets a job on the other side of the country, what happens to that property?,” said Jessica Lautz, vice president of demographics and behavioral insights at NAR.
Such buyers should treat their purchases together as a business partnership.
“Are both of you contributing the same down payment and the same closing costs? Are you earning equity in the same way? Also, are the rooms the same size? Are the bedrooms the same size? Do both have en-suite baths? How is that going to work out,” Lautz said.
NAR recommends all potential scenarios, including how long-term of an investment it is and how equitable the partnership is, should be addressed with a legally-binding, attorney-drafted agreement before the purchase is made.
Roommates and friends buying a home together are not just young buyers. Some are widowed or single seniors.
“It is very expensive to actually downsize by yourself. And maybe you want companionship. So it becomes a great option for perhaps the ‘Golden Girls’ scenario,” Lautz said.
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