# Buying house with a friend - thoughts?



## TK.61 (Mar 27, 2012)

Hi all, long time reader first time poster.

I would like to hear all your opinions & thoughts on buying a house with a friend. I will try and give you as many details of our situation as possible 

We are both single, young, long time friends (age 23 now, friends since 8-ish). I am a guy, she is a girl, definitely no chance of dating, never have never will. She graduated from university last december, I will graduate this december. We would buy this summer if we were to go ahead with it. She works full time, and starting in may I will work full time, when I go back for my last semester in september, I will only have 3 classes, so I would still be able to work almost full time. I will be paying the full down payment then we will qualify for a mortgage together. Both of us are good with money.

Reason for buying together is, I have a large sum of money, large enough for a big downpayment, but due to just graduating, wont be able to qualify for a big enough mortgage to put the downpayment to use by myself. So buying together came to mind as we would afford an above average 1st house and potentially even rent out a 3rd bedroom to a friend, saving us money. Both of us want to move out on our own and renting doesn't really make sense for me.

Any thoughts or opinions are appreciated, both negative and positive


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## NotMe (Jan 10, 2011)

Ignoring the legal perils of buying with someone who's not your spouse, you're only 23. Your life could change dramatically in the next 2 - 3 years and buying property will only tie you down. And even if your life doesn't, her's might. Houses are highly leveraged illiquid investmetns with heavy disposal costs. out of curiousity, why do you say renting isn't an option?


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## Homerhomer (Oct 18, 2010)

TK.61 said:


> Any thoughts or opinions are appreciated, both negative and positive


Negative - nothing but trouble, things change, life goes different way especially for young poeple. If one of you wants out what will the other one do?

Positive - none.

Wait until you get a job and buy by yourself if you really want to.


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## RoR (Jan 18, 2012)

Don't do it. 

If you have the downpayment and can afford the montly payment, find someone financially responsible (like a parent) to perhaps co-sign on your mortgage. That's what I did. Buying a house with a friend will be a disaster. Almost guaranteed.


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## kcowan (Jul 1, 2010)

If you must do it, give her a demand loan and let her buy the house. Set the interest rate such that you will get an acceptable return (higher than a mortgage, even higher than a 2nd). Pay her rent for your room. Let her get any added rental revenues. Make sure it is all properly documented. Any future spouse and the CRA will be glad you did.


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## Four Pillars (Apr 5, 2009)

Horrible idea. Just say no.


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## OptsyEagle (Nov 29, 2009)

Sounds like a pretty good way to lose a friend, if you ask me.


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## TK.61 (Mar 27, 2012)

NotMe said:


> Ignoring the legal perils of buying with someone who's not your spouse, you're only 23. Your life could change dramatically in the next 2 - 3 years and buying property will only tie you down. And even if your life doesn't, her's might. Houses are highly leveraged illiquid investmetns with heavy disposal costs. out of curiousity, why do you say renting isn't an option?


Thanks for your reply,

Renting is an option, I just said that it doesn't really make sense for me. This is because in the area that I live, and the general area that I would like to stay, rent is considerably higher than what a mortgage payment would be. For example, many basements/main floors (700-1000sqft.) rent out between $750 and $1100, and the mortgage pmt on the whole house would be around $1400-$1600. Comparable houses rent out between $1700-$2300+ where the mortgage pmt would be the same $1400-$1600.


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## CanadianCapitalist (Mar 31, 2009)

TK.61 said:


> Comparable houses rent out between $1700-$2300+ where the mortgage pmt would be the same $1400-$1600.


Are utilities included in the rent? Even if utilities are extra, renting means you don't have extra expenses that go with owning a home: maintenance, insurance, property taxes etc. Also, assuming you made a significant down payment on the home, you have an opportunity cost of the downpayment fund. You have to be careful when simply comparing rent to mortgage payments.

That said, I agree with the others. It doesn't sound like a good idea to me. Besides, why rush into buying a house before starting on the first real job? Why not rent for a year or so?


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## gimme_divies (Feb 12, 2011)

I'll offer a different perspective than all the other posters since I am today celebrating 3 years of living in a very similar situation and it has worked beautifully. 

I am a little older (now 30) and am married with an 18 month old son and we bought a duplex with good friends that we have known many years (i.e. since grade 7). We were in a similar situation having some capital available for the down-payment and they had none, but were both starting their career as lawyers and had good cash flow. We bought the duplex together because we wanted to live in a nice neighborhood close to work and it was cheaper to go at it together than it was for us to have 2 seperate residences. When we purchased, we sat down and ironed out a co-habitation agreement that included clauses for sharing expenses, home improvements, etc. We also took a 3-year fixed mortgage and agreed that we would stay for at least that long. We have since renewed for another year and will be going year to year going forward.

This situation has yielded many benefits including sharing cable/internet costs, car pooling, bailing me out when I locked my keys in the car, sharing stuff from Costco, watching each other's kids for a little while to run quick errands, and mostly us going from being good friends to feeling like family. Our 2 boys (both born at this residence) are 6 months apart and are starting to build a very nice bond. There have been mild annoyances (both ways) but have never had any real disagreements. 

We were told by everyone not to do it, that it would ruin our friendship and lead to money problems, etc...maybe we are the exception but we are very happy we went through with it.

Now, for your situation, your living quarters seem like they would be shared (whereas we have 2 seperate, identical units). This can introduce further savings possibilities (like groceries, utilities, etc..) but means you will also be seeing each other a lot more. I would say this could introduce greater risks of conflicts but only you can know how strong your friendship is. I think the key is to try to predict all potential circumstances (what if one of you enters a serious relationship?) and try to agree up front on how to deal with those situations. If you can go at least 3 years then I think it may be worthwhile. Just be sure to do your due diligence and make sure to have a co-habitation agreement. The key is ongoing communication, just like with any relationship.

Hope this helps.


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## MoneyGal (Apr 24, 2009)

I think the situation you describe, g-d, is fundamentally different from the original poster's. (One of my kids was also born at home - I feel like I can never actually sell my house for this reason alone!) Your situation is fundamentally more stable: you were at a different life stage than the OP. You have 100% more people involved in the deal. Theoretically you could buy out the other couple should you need to. Shared space in a single detached house is very different than non-shared living space in a duplex. Plus, in the scenario you described, you took on very very little risk. Even if you grew to dislike the other couple, you don't really have to see them (so the friendship was not at risk in the same way). And lawyers just starting out -- pretty much the perfect couple to bet on. 

I could go on, but I really think this is an apples-to-oranges comparison. The OP is talking about making a large, illiquid, undiversified investment when he has almost no financial capital (relative to his lifetime of earnings which will be used to pay down a mortgage). You were at a life stage when you were ready to make that kind of investment (hint: you said "close to work" not "I'm almost done school"). I don't have any problem with people owning property with others. I do have a problem with "mortgages of convenience" especially when the fundamentals ("it's cheaper to buy") seem to be poorly understood.


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## the-royal-mail (Dec 11, 2009)

I think this is a very bad idea. I cannot for the life of me understand why you feel the need to tie yourself down to a property at this stage in your life. It is a bad, bad idea. You are on the cusp of beginning your life. You will be going through major changes. As well as your friend. There will be boyfriends and girlfriends coming home, jobs will change, one or both will move and eventually when the house needs to be sold you will be paying 5% to the RE agents. That is a significant amount of money.

Also, comparing rent to a mortgage payment is not an equal comparison. Houses come with significant taxes, property maintenance and repairs expenses. What will you do when interest rates go up and one of you loses your job? Can you handle the house on your own if she leaves without warning one day? What obligates her to keep paying her part? Or you?

Most people who buy houses together are in committed relationships together.

When it comes to friends, don't enter into business arrangements with them.

There is too much to lose and too little to gain. I cannot support this idea.


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## Causalien (Apr 4, 2009)

Be prepared to lose the friendship and half of your house. Imaging this as the worst case scenario. Can you handle it? Of the friends I've tried doing business with in the past 100% end in failure, ~70% end in failure and a souring of the friendship. Only 30% remained friends. Right now, this is a big nono for me.


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## Just a Guy (Mar 27, 2012)

*Bad idea.*

Your friend is not bringing anything to the table. It's a huge risk for yourself. If you really want to buy something, talk to a mortgage broker and see what you can qualify for, you may be surprised.


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## NotMe (Jan 10, 2011)

MoneyGal said:


> I think the situation you describe, g-d, is fundamentally different from the original poster's. (One of my kids was also born at home - I feel like I can never actually sell my house for this reason alone!) Your situation is fundamentally more stable: you were at a different life stage than the OP. You have 100% more people involved in the deal. Theoretically you could buy out the other couple should you need to. Shared space in a single detached house is very different than non-shared living space in a duplex. Plus, in the scenario you described, you took on very very little risk. Even if you grew to dislike the other couple, you don't really have to see them (so the friendship was not at risk in the same way). And lawyers just starting out -- pretty much the perfect couple to bet on.
> 
> I could go on, but I really think this is an apples-to-oranges comparison. The OP is talking about making a large, illiquid, undiversified investment when he has almost no financial capital (relative to his lifetime of earnings which will be used to pay down a mortgage). You were at a life stage when you were ready to make that kind of investment (hint: you said "close to work" not "I'm almost done school"). I don't have any problem with people owning property with others. I do have a problem with "mortgages of convenience" especially when the fundamentals ("it's cheaper to buy") seem to be poorly understood.


+1 for MG. 30 is miles aways from 23. Just like 21 is miles away from 14, and how 87 is NOT miles away from 80.


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## OhGreatGuru (May 24, 2009)

I was tempted to agree with gimme_divies, that with a proper cohabitation agreement it could work. But having re-read the initial post, I agree with others that there is too much risk. Each would want/need the option to move out and terminate the agreement, but neither one is in a financial position to buy the other one out, or even to take over sole possession of the remaining mortgage.

Rent an apartment or house together maybe, although even that has risks as joint tenants are usually jointly and severally liable for rent if one takes off. But in a strong real estate market it might be considered a lower risk than being stuck with a mortgage you can't afford.


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## gimme_divies (Feb 12, 2011)

NotMe said:


> +1 for MG. 30 is miles aways from 23. Just like 21 is miles away from 14, and how 87 is NOT miles away from 80.


For the record, I was 27 (now 30) when we purchased our property but I agree with what MoneyGal said in her post. Nonetheless, if the OP has bothered posting in this forum, he has a belief that his friendship is strong and if he and his friend are committed to make it work, I think it can. It really comes down to trust, maturity and responsibility and a realization that success is mutually beneficial while failure could be destructive. 

Also, MoneyGal, perhaps I worded it wrong, but I meant both kids were born while we all lived at this residence, not that they were actually born IN this house, though that's great you have that special attachment to your home.


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## Mall Guy (Sep 14, 2011)

MoneyGal said:


> "mortgages of convenience"


+1 . . . I have a friend who bought his first house, and rented some space to a guy he knew . . . friend is now married, couple of kids, and three moves and 15 yrs later, the guy is still their tenant . . . sometimes it just works, but you need to know how to get "divorced" (google Eddie Cogan . . . "look after the downside and the upside will look after itself"). 

I read an article on (mostly about 30-40 single women) buying property together. . . Whole different story (age/career). Agree that is way different then just finishing school. I had a business partner once, couple of years in he had a great job offer! What happens when you (or she) needs to move for that great offer?


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## marina628 (Dec 14, 2010)

All it takes is one jealous boyfriend/Girlfriend and this plan will go to hell.


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## londoncalling (Sep 17, 2011)

I had a couple of friends purchase a home together in their early-mid 20s together both fresh out of school. When they asked me about the endeavour I warned them about the potential pitfalls that have been mentioned above. Fast forward 6 years and they still own the home together. However, their relationship has become so strained that they both detest the other one for a variety of reasons however they do remain civil. Both have commented to me that it is time for the other to leave but neither wants to nor do they want to sell the property. This problem has been compounded by the addition of significant others for both and an engagement for one. On top of the regular roomate issues regarding minor details such as dirty dishes, taking out the garbage is the larger hassle of maintenance and home improvements. I had recommended they work this out in writing prior to the purchase covering a list of scenarios that have already been mentioned above. Sadly, this arrangement will end in failure and the loss of a really great friendship. They both are too attached to their first home, cannot agree on when to sell, what to sell for or a fair price to buy each other out. There is a slight chance that this can work as mentioned with the duplex scenario above but that is clearly a different arrangement. Decide if your friendship is worth losing, as well as any financial gain from this decision, before proceeding then go through the list of what ifs. My friends have both told me in confidence wish that they had listened to me, not that I was the only one that gave this opinion. Neither regrets buying the home but both wish they had ran through the list of possible outcomes and gotten them figured out. Good luck to you in whatever you decide. If it were me personally, I would avoid it like the plague. I have been offered opportunities to enter business arrangements with friends and family and have always politely declined. I may have missed some potential financial gains in the process but I never risked personal relationships and for that I am grateful.

Cheers


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## crazyjackcsa (Aug 8, 2010)

I say go for it! Damn the naysayers! Everything will work out all rosy like. I'd start thinking even bigger, maybe a commune? Get a whole bunch of friends together and buy a 6 bedroom farmhouse, grow organic produce and have a grand old time.


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## Cal (Jun 17, 2009)

I see it this way. You buy the house, legally being on the hook for potentially all of the debt, yet you only get half of any profits....Not for me.


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## Causalien (Apr 4, 2009)

Cal cuts through all the crap and outs the most succinct business version of your overly complex social contract. Listen to cal.


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## jcgd (Oct 30, 2011)

I've ran the number about 6 times over and I can't fathom where it is cheaper to own than rent anywhere in Calgary (except in the Calgary Sun, where apparently you only need to make $30k/yr to qualify).

What area are you looking in? Even Sunnyside was $12-1800 a month for a 3-4 bedroom when I lived there. Way cheaper than the mortgage (plus utilities, maintenance, property taxes) on a $600k house.


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## KaeJS (Sep 28, 2010)

If you were doing this with a male, I'd say it MAY be able to work.

My personal opinion? I'd never do it with a female no matter how good of "friends" you are. (No offense to the ladies! Men and Women are just different)


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## Sampson (Apr 3, 2009)

Sunnyside isn't exactly the best community to use for comparison. There are many communities in the burbs that have much more favorable ownership:rent. That being said, yeah, most places in town are much cheaper to rent than own.


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## TK.61 (Mar 27, 2012)

Thanks for all the comments, I appreciate it. Made me think a lot about it. Still haven't made a final decision either way as I still feel it would work if it happened (wishful thinking maybe?), but the comments about being tied down so young spoke to me. Trust me I have thought about this decision a lot and for a long time, this wasn't just a spur of the moment thread. I have spread sheets about costs and have done a lot of research.


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## Causalien (Apr 4, 2009)

Yeah... thinking back. Owning a home before I was 30 was a bad choice. Simply because my life was a lot more mobile back then, to meet people, tackle new opportunities. Moving to another country on a whim. All these became impossible once I was tied down with RE all because "I wanted to try it out". Money management become a [email protected] because you get this crunch time every year where you have to stop spending in order to save that extra for property taxes. 

However, this is when the friend's personality comes into play. If she is the type who is settling down and staying, she can be the business partner to manage the place. If I had someone I could trust like that (and this trust should be built slowly through smaller business ventures), I would've kept the properties.


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## dotnet_nerd (Jul 1, 2009)

Here's how you can make it work.

Go ahead with the deal but include an exit provision. What you do is write a so-called "shotgun clause" into your agreement.

The clause works as follows: Suppose your relationship sours and you want to go your own separate ways. You make your partner an offer to buy out their half of the house. Your partner must either
1) accept the offer
or
2) buy YOU out for that same price. (This ensures the offer price is fair hence the "shotgun" nickname)

Include a reasonable period of time to respond so financing can be arranged if necessary, perhaps 60 or 90 days.

Shotgun clauses are commonly used in business relationships/shareholder agreements but I don't see why it couldn't be adopted for real estate deals. 

GL


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## realist (Apr 8, 2011)

I think it is a bad idea for the reasons noted above. The risks outweigh the rent savings in my opinion.

It becomes an EXCEPTIONALLY bad idea if you do it without an extensive written agreement about how to end the relationship. I have friends that were in this situation and it didn't end all that well, largely because they didn't have this kind of agreement.


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