Home Mortgage Alliance Corporation (HMAC)

Friends without benefits: The perils of co-purchasing a home

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Published Date 9/27/2024

The dream of buying a home with friends can quickly turn into a nightmare when it's time to part ways, according to The Wall Street Journal’s Dalvin Brown.

As the housing market soared during the pandemic, more friend groups pooled resources to purchase property together. Now, some are discovering the challenges of untangling shared finances without damaging relationships.

Brown tells the story of Celeste King who, in 2021, invested $100,000 with two friends to buy and renovate a lake house near Austin, Texas. The vision of weekend getaways and work retreats at a fraction of the cost seemed idyllic. However, after two years, King wanted out due to renovation frustrations and rental guest issues. Her options were stark: lose her share of the 50% appreciation or risk losing her friendships.

Data shows a surge in friend groups buying homes together in recent years, particularly among those priced out of the solo market, according to Brown. “The fantasy of shared experiences at a reduced cost was alluring. But as some co-owners look to exit, they face a complex challenge: how to disentangle finances while preserving friendships?”

He says King's experience highlights the emotional complexities. Her friends couldn't afford an immediate buyout, so she agreed to monthly installments over several years. "That's the big con to doing business with friends," King reflected. "Because I still care about those people, I'm willing to be less self-interested."

The trend of co-buying peaked in 2021 but has since declined. According to Attom Data Solutions, the number of co-buyers with different last names fell 29.5% over the following two years. Zillow reports that the percentage of co-buyers who purchased with friends dropped from 14% in 2023 to 7% in 2024.

Real estate analysts predict this trend may further recede as the Federal Reserve cuts interest rates, potentially making traditional homeownership more accessible to first-time buyers. Lower mortgage rates could also open refinancing options for existing co-owners.

Brown cites real estate lawyer Andy Sirkin, who notes that most co-ownership dissolutions aren't due to conflict but life changes like moving, marriage, or job relocations. However, close quarters can indeed spark difficulties.

Another story? In 2019 Kristen Sarah and Siya Zarribi bought a house with friends in Ontario, hoping to create a nurturing community for their newborn. The pandemic exacerbated tensions, with disputes becoming awkward and inescapable noise issues. After a year, both families moved out, remaining friends but selling the property in 2021 for a profit.

Even compatible co-owners face complex decisions as exit points approach, says Brown. Veronica Vest and Tara Takano, who bought a home in Portland in 2020, included a five-year reassessment clause in their contract. As they approach this milestone, they're grappling with potential buyout scenarios and the impact of continued property appreciation.

Often, the challenge lies in deciding whether to sell at all. Brown cites yet another tale where two friends in South Florida bought an investment property. Despite wanting to keep it, he found himself at odds with his partner who was ready to sell due to rising costs and market conditions. "If it was only my house, I'd be in it for the long run," he said. "But it is a partnership. We need to be aligned, and it is uncomfortable when we're not."

Brown admits that as more friend groups navigate the complexities of co-ownership, the importance of clear agreements and open communication becomes evident. While the dream of shared homeownership may be tempting, the reality often requires careful planning and a willingness to prioritize relationships over financial gain when conflicts arise.

WSJ, TBWS

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