Buying a house with a friend or sibling
It's an old-fashioned concept that's catching on in modern urban life as a way to live beyond your means without being in over your head. It's shared housing, something most of us put behind us when our roommate days are over and we contemplate buying a home.
But buying a home with a friend or family member can
be an attractive option in cities where home prices start in the
hundreds of thousands.
"Sharing a house purchase is certainly something we see these days,"
says Toronto Realtor Ray Cochrane. "In my experience, it usually
does work best if it's between family members. But every case is
He cautions that getting legal advice is the best approach, especially if it's two friends who get caught up in the idea before thinking ahead. He cites the case of two young men who purchased together while both were single. In time, however, each took on a partner and that's when the breakdown in the arrangement happened. "Everything was fine until they met their girlfriends and the two women didn't get along."
That's where the equivalent of a prenuptial agreement
can be invaluable. Known as a co-ownership agreement, it can set
out the terms for dissolution, says Toronto lawyer Beth Moore. "You
can spell out the terms for resale. One area that's always a concern
is when one person gets into financial trouble and can't pay their
share of the mortgage and expenses as arranged. That's when relying
on a contract is important."
Moore says there are two types of ownership: joint
tenancy, in which one party automatically inherits the other's half
in the event of death, and tenants in common, in which ownership
can be shared unequally between the parties and is passed on according
to inheritance laws in the event of the death of one party.
She gives the example of two siblings who are single
and without any children at the time of purchase. Joint tenancy
would suit their situation if each wanted the other to inherit their
share upon death. If, however, one of the siblings married or had
a child, they would need a tenants-in-common ownership in order
to leave their share to their spouse or children.
In the case of uneven ownership (for example, a 60/40 split between the parties) a co-ownership agreement can spell out how expenses such as utilities or upkeep are to be handled -- according to the split or each side paying half.
Work toward 50/50
Moore says that even if ownership started out as unequal, it's good to work toward 50 percent equity over time. The reason for this, she says, is because if you are buying someone out, it can trigger land transfer taxes at a certain percentage of the home's value. To achieve parity, set it up as an even split and have the person with the lesser actual share pay more on the mortgage until both own an equal amount.