Pamela Ferdinand is a freelance journalist, author, and editor based in the Chicago area.
As a single mother of two, Kelsey Perkins was able to buy a five-bedroom house last year in a suburb of Denver, CO—one of the priciest housing markets in the country. She didn’t have a high-paying corporate job, a lot of savings or even assistance from her parents to put toward the $470,000 home.
But she did have friends: another single mom and a male musician, both of whom were willing to sign on the dotted line along with her. Today, they live in a house they all own and share, with each person paying just under $900 a month to cover the mortgage. Other expenses, including utilities, are split separately.
Amid fast-rising home prices, living costs, and student debt loads, many millennials and other cash-strapped buyers have found they're not able to buy on their own. But they don't want to rent forever and miss out on gaining equity in property, either.
So, some have found a workaround to the housing affordability crisis: banding together and pooling resources to come up with the down payments and closing costs that make homeownership a reality.
With median home prices hovering above $300,000 nationally, together they can qualify for larger mortgages to cover bigger homes in more desirable areas, while also sharing ongoing expenses such as property taxes and repairs.
About 4% of first-time buyers purchased homes with housemates from July 2018 through June 2019, according to National Association of Realtors® data. And while that probably doesn't sound like much, it's double the percentage of those same buyers in the previous 12-month period.
"There’s a lot of people who are looking at homes today and saying: I can’t afford this by myself. I’m [on a] single income. ... How can I get into a house?” says Jessica Lautz, vice president of research at NAR. “Finding someone who’s renting currently and matches your ideal [co-buyer profile] sounds like a great idea. Why not have a stable home and gain equity at the same time?”
In the sharing economy era, co-buying is likely to expand beyond urban centers, especially with the trend of millennial buyers moving to small towns for affordability, says Lautz.
It's already led to a rise in organizations that help individuals work out multiple-buyer arrangements, and to innovative programs that offer down payment funds to home buyers in exchange for a stake in home equity.
More than three-quarters of Americans believe homeownership is a good financial decision, a 2019 NAR study reports. But about half of non-owners believe it would be difficult based on their current financial situation.
"It really made sense to us that if we were able to find a place that met everyone's needs, we would be able to support each other," says Perkins. "And it would be much more doable from a financial standpoint."
Kelsey Perkins, left, a single mother, was able to become a homeowner by buying a property with friends.
Courtesy of Sarah Wells
Get everything in writing—including exit strategies
Needless to say, buying a home with friends or roommates isn't nearly as simple as going in on a pizza or vacation together. Fannie Mae, for instance, requires that co-owners buy properties as joint tenants. That way, if one owner dies, their share goes to the other owners and not to the heirs of the deceased person.
Turning a co-ownership into a limited liability company (LLC) after closing can provide certain legal protections and tax benefits. It can also allow for the partnership to change as people move in and out.
The hardest part, however, is helping clients negotiate the personal terms of the deal, says Michael Soon Lee. He's a real estate broker associate with Realty One Group in the San Francisco Bay Area suburb of San Ramon, CA.
Important issues to consider range from big financial choices to the smallest details of living together. They include:
Whose name(s) goes on the title?
Who’s responsible for collecting and making the mortgage payments?
Who will oversee maintenance and repairs?
What are the rules for pets, houseguests, and other visitors?
How will decorating and furniture-buying decisions be made?
Even before they look at properties, Soon Lee tells prospective co-buyers that they should closely examine each individual’s finances, from credit scores and tax payments to bank accounts. One person who has a tax lien can negatively affect the others’ ability to get a loan, for instance.
It's just as important that co-buyers have a comprehensive legal agreement that stipulates each person's responsibilities—and clear exit strategies.
This way, no one's locked in if people aren't getting along. A co-owner may want to move in with a romantic partner or move away for a new job. Alternatively, someone may default on the payments.
The average price point for three co-buyers in the San Francisco Bay Area is about $900,000 per residence, and no two agreements are the same, Soon Lee says. As he helps them purchase a home, he says, his role is as much as a psychologist and counselor as a real estate broker.
“[Co-buying] is a business transaction, even if it is done among friends,” he says. “Compromise is the ultimate word. You’re looking for people who are flexible and have the greater good in mind. Those are the people who make this work the best.”
And it's not a decision—or process—to take lightly.
Her national property co-buying service provides a free membership platform with worksheets, agreements, agents, lenders, and ongoing assistance.
Similarly, Pam Hughes and her son founded CoBuy in Seattle to streamline the co-ownership process by educating prospective home buyers and connecting them with real estate agents and other professionals.
Options like co-buying are vital to communities and can set a city apart by helping to draw and keep a workforce, Hughes says.
“That’s important when you have Amazon and Microsoft and Salesforce in your backyard," says Hughes. "They’re trying to attract millennials at a time when wages, while attractive, aren’t keeping pace with the increase in housing prices."
It's not just about the money: Co-living can foster community
For some co-buyers, it's not just about being able to afford a home and build equity in expensive parts of the country. Some friends (and strangers) also seek the companionship of shared living space.
Sarah Wells witnessed that firsthand when she took about 100 people through co-buying classes in Denver last year.
With rents going higher and higher, she says, some landlords are taking advantage of people of limited means—and renters are eager to find a way out.
“There’s a financial need to innovate in the housing sector, and we’re starting to see more and more cases of the loneliness epidemic,” says Wells, who also runs Queen City Cooperative, a Denver-based housing co-op. “Creating community housing is a way to address both of those things.”
Two friends, Jack Teter, 29, and Kyle Huelsman, 30, turned to Wells when they decided to buy their rental from the landlord for $860,000 in 2018. They had been running a co-operative for two years in the house, which is located in a charming downtown Denver neighborhood popular with 20-somethings and young professionals.
The house has eight bedrooms, a fully finished attic, 3.5 baths, and three living rooms, and includes a renovated garden-level apartment with a private entrance. It’s ideal for group living.
On the second floor, Huelsman and his wife, Kathleen (now also a co-owner), live in two rooms, while Teter and his partner live in another two rooms. The couples share a bathroom. Three other housemates—men and women ranging in age from 22 to 34—currently have month-to-month leases.
At one point, more than 100 people applied to live in the house, Teter and Huelsman say.
“We asked how we do something that is really different from the status quo,” says Huelsman, who works at the State Innovation Exchange, a national resource and strategy center. “We’re changing [our] life trajectory. I want to have a strong community, and this felt like a powerful way to express that.”
Teter, the Colorado political director of a national reproductive health care provider, used family money to pay 80% of the down payment, which serves as the equivalent of a no-profit, interest-free loan. Rental income is evenly split between the two groups of owners, to help cover the mortgage.
Individuals who earn more money pay more rent, which ranges from $500 to $1,000 per person each month and is never more than 28% of minimum wage. Nor is rent an income source for the co-owners, who pay additional funds, as the only ones gaining equity.
“We talk about this as a long-term, permanent thing," says Teter. "I very much anticipate and would like to raise kids in a house with Kyle and his wife and kids.”