Homeownership Hack: How does co-buying boost your purchasing power?
Teaming up to buy a home cuts upfront costs by up to 50%, and the financial benefits don’t stop there.
Home prices in the U.S. have soared 36% over the last five years, threatening the path to homeownership for millions. Is homeownership still part of the American Dream? You bet. More than four in five Millennial renters want to buy in the future, but seventy-seven percent say they have less than $5,000 saved for a down payment. For the majority of these folks, affordability is the show stopper.
Co-buying can unlock homeownership. Outside of the social, logistical, and ecological benefits, co-buying makes homeownership more affordable and accessible. By teaming up with friends, family, or your partner, you amplify your purchasing power and share the financial expenses:
- Upfront costs (down payment, closing costs)
- Recurring costs (total monthly payments, bills, etc.)
- Incidental costs (maintenance, repairs, improvements)
This post will unpack the economic rationale behind co-buying and look at an example using current numbers.
Less cash upfront
Saving up for the down payment (and closing costs) on a new home is an obstacle for many aspiring homeowners. Rising housing costs are a key factor. High rents make it difficult to save while increasing home prices create a moving goal post. The result is a rental trap.
Over five years, a renter who spends an average of $1,500 a month on rent pays their landlord $90,000.
A renter is effectively paying off the landlord’s mortgage. Other expenses associated with the home are often baked into the rent price, too. Over five years, a renter who spends an average of $1,500 a month on rent pays their landlord $90,000. If home prices increase over the same time period, so does the down payment requirement. This shuts many folks out from becoming homeowners.
Co-buying increases your purchasing power.
Teaming up to buy a home gets you more bang for your buck: a home with more bedrooms is often cheaper on a per-bedroom basis. It’s similar to shopping at Costco.
In Seattle, the median sale price for a one-bedroom home is $414,000. It’s $775,000 for a three-bedroom home. If we break it down per bedroom, then buying a three-bed offers a discount of 38%. Not bad.
A common misconception is that you need 20% in cash to fund the down payment. You don't.
Buyers typically have to produce funds upfront to cover cash to close, the sum of the down payment plus closing costs. Nationally, the average down payment for first-time homebuyers is 6% of the purchase price. Average closing costs run between 2-5%.
Lower monthly housing costs
Whether you rent or own a home, there are recurring monthly housing costs to be paid. Homeowners make monthly mortgage payments instead of paying rent. In addition to monthly mortgage payments on principal and interest, homeowners have property taxes and insurance costs. These are sometimes due once or twice a year, but it’s useful to think in monthly terms.
If we look at total monthly housing expenses, co-buying decreases individual costs through the same purchasing power principle. Teaming up brings down the per-person cost on an ongoing basis. This is the beauty of economies of scale.
Co-owners also split utilities and bills. For fixed-charge expenses, the monthly savings from sharing costs add up quickly. Splitting garbage fees ($50/month), broadband internet ($60/month), and Netflix ($18/month) three ways saves each co-owner $85 per month or $1,024 per year.
Shared incidental costs
Co-owners share in costs that arise periodically–unexpected expenses and voluntary expenses.
Maintenance and repairs are part of homeownership. Appliances, household systems, and exterior upkeep are just a few of the things to consider. A rule of thumb suggests budgeting 1-3% of the purchase price annually depending on the home’s age. Spreading the expenses of routine maintenance and one-off costs brings down the costs per person. A few examples:
- A/C repair $550
- AC Unit (new) $5,450
- Water damage repair $3,046
- Refrigerator repair $250
- Electrical repair (minor) $500
On the flip side, co-owners get to divvy up the costs of household items, furniture, and any home improvements. With co-ownership, buying a new entertainment system or building an outdoor deck becomes relatively more affordable.
Co-owners should document and track individual and group contributions, payments, and ownership. In particular, you'll want to keep a record for:
Being diligent about getting things in writing avoids confusion and makes things easier if co-owners decide to go their separate ways.
To illustrate how co-buying makes homeownership more affordable, let’s look at an example using actual current market data from Seattle.
Consider two scenarios:
- A single person buying a 1-bed home
- Three co-buyers buying a 3-bed home
In both cases, assume:
- Down payment at 10% of the purchase price
- Closing costs at 2% of the purchase price
- Mortgage interest rate at 3.5%
The upfront cost to buy a home—down payment plus closing costs—comes to $50k for the single person versus $26k for each co-buyer.
The total monthly payments—principal, interest, taxes, and insurance—come to $2,292 for the single person versus $1,414 for each co-buyer.
Co-buying can radically reduce the financial barriers to homeownership. In our example, teaming up to buy nearly halves the upfront costs of becoming a homeowner. For the co-buyers who become co-owners, monthly housing payments are 38% lower.
For many aspiring homeowners, co-buying unlocks homeownership outright. For others, it provides an accelerated path to homeownership and frees up cash for other pursuits, investments, or adventures. Whether as a stepping stone or a long-term setup: co-buying provides optionality and improves affordability.
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