With the rapidly rising cost of living, homeowners are seeing an increasing lack of affordable housing across most major cities in the US. The time has arrived for creative housing solutions and co-ownership of real estate might offer just that answer. Whether you are seeking to buy a property for rent or development, there are several different ways to co-own real estate.
Common Ways to Co-Own Property
Tenancy in Common. Tenancy in common is also a form of joint ownership in which each of the co-owners has ownership interest in the entire property. With a tenancy in common, each owner owns a percentage interest in the property and can transfer that interest however he or she wants. If one of the owners sells or leaves their share of the property to someone else in a will, the person who buys or inherits the land will then become a joint owner with the other joint tenants.
Joint Tenancy. Joint Tenancy is another ford of co-ownership where each owner must have an equal ownership interest in the property and you can’t leave your interest to someone in a will. If one of the joint tenants dies, his or her interest immediately ceases to exist and the remaining joint tenants take over ownership of the entire property.
These co-ownership options make home buying more affordable for individuals that have been priced out of the current real estate market. As a recent LA Times article pointed out, “Tenancy in common migrated south from the more cutthroat market of San Francisco, where it’s been around for decades. As Los Angeles grew more expensive, TICs gained ground here… TIC units are now selling at an 11% to 15% discount relative to comparable condos”
The Pros of Co-Owning a Home
- More borrowers make, makes loan qualification easier. With more challenging lender standards when it comes to credit score, debt to income ratio, etc., it’s easier to qualify if you bring in more income to offset the debt.
- If all the new borrowers will be occupying the new home together, you also get to share expenses such as splitting the utilities. Having joint ownership helps offset some of the big expenses of owning a home.
- There’s also the perk of getting to claim mortgage interest on your taxes, but keep in mind, you’ll have to split the total amount with your co-borrowers.
Joint Ownership Downsides
Sharing the burden of a home loan and all that goes into being a homeowner often creates an opportunity that wouldn’t be possible for any of the borrowers on their own. However, making a big commitment as complex as sharing a home and a mortgage with someone means that you have a long-standing financial obligation to each other. While joint ownership of a home is a great idea in theory, it only works if all parties are on board and willing to keep up with the financial commitments. If not, it will cause headaches and disagreements down the road.
Lastly, draft a written agreement. Any decisions you make regarding your ownership interests and how you will share the costs and responsibilities of maintaining the property should be put in writing so they become legally binding.
Joint ownership is a novel way that is making homeownership affordable for many buyers. If you are currently in the market for a home, consider this option and as always do your due diligence!