How Three Millennials Bought Their Dream Home Together
How Three Millennials Bought Their Dream Home Together
Three millennial friends pooled their resources to buy their dream home together with CoBuy’s help.
This is their story.
At CoBuy we respect everyone who comes to us for help. So while their stories are true, client names, images and details may have been changed to protect their privacy.
Meet The CoBuyers
And what they each brought to the table.
- Income: $85,000
- Cash Available for Downpayment: $35,000
- Motivations: Live close to work, start building net worth
- Monthly Housing Budget: $1,200
- Income: $94,000
- Cash Available for Downpayment: $25,000
- Motivations: Live with best friends, avoid constant rent increases
- Monthly Housing Budget: $1,200
- Income: $125,000
- Cash Available for Downpayment: $50,000
- Motivations: Buy a desirable home near the city center
- Monthly Housing Budget: $1,400
“We thought about buying a house together, but it didn’t “click” until we met with CoBuy.” - Olivia
Other Key Facts
The lowest credit score amongst the group = 740 (middle score of Experian, TransUnion & Equifax)
Derived by a pre-approval from an experienced CoBuy-certified™ lender.
Total Monthly Budget Available
By combining all their monthly housing budgets, they are able to afford $3,700.
This monthly budget included Principal + Interest + Property Taxes + Homeowner’s Insurance
The group decides on a budget of $770,000 or less.
This is determined in consultation with a CoBuy-certified™ lender.
The group learned they could afford more, but they choose not to stretch too far.
Everyone shared the following motivations to CoBuy:
- Maintain quality of life
- Hold monthly costs down
- Continue living together
- Use home ownership to save for their longer term goals
They move quickly through the CoBuy Wizard, which transformed complicated scenarios into easy to understand questions. The group is surprised to learn that there were still a lot issues they hadn’t considered. For example, they had not defined the difference between necessary “maintenance” vs. optional “improvements” and how they would share these expenses.
Olivia is a project manager in the tech world and naturally checks in with her group members to ensure everyone participates and has a voice. Their parents have some reservations about the group buying together but are happy to hear that they are seeking guidance from CoBuy. They are all over 30 years old. Each plans to have a family one day, but for the foreseeable future they are all single and don’t want to put their financial goals on hold.
They believe that buying a home with their longtime friends will make the shift to owning their own property less scary and complicated. CoBuy explains they may be able to use the equity they gain on this home as a downpayment on a future home.
In short order, CoBuy confirms that the three of them are eligible to CoBuy together. With a green light in hand, the group is energized and ready for the next step.
Planning and Building Consensus
CoBuy recommends they start by assigning roles among the group and addressing the many considerations that comprise home selection.
This saves everyone in the process time and money. Some of these questions include:
- What neighborhood does the group want to live in?
- What are the group’s expectations for living together?
- How long does the group want to own together?
- How would the group handle risks like death, marriage, job loss, births, financial speedbumps, exit strategies and more.
- How does the group want to split ownership interests?
They decide that to make their lives simple, they would prefer an even ownership scenario, with down payments of the same amount. Because they each live in different sized bedrooms, they elected to divvy up the monthly mortgage payments accordingly.
CoBuy walks them through various solutions to the “What if…” scenarios like job loss, illness, and other issues that might cause financial hardship for the group.
Throughout the process, the group learns that they are “joint and severally liable”for the mortgage. This means that each party on the loan is independently liable for the full amount of the outstanding debt. This makes it especially important to have solutions in place in the event a risk materializes.
Once the group has a plan in place and has fully agreed to the process, they are ready for the next step.
Securing Joint Financing
Once everyone is on the same page, literally, it’s easy to connect with a CoBuy-certified ™ lender.
With the group’s permission, CoBuy shares the group’s high level financial information allowing them to move quickly and efficiently. It’s a win-win!
Because CoBuy has prepared the lender and the group for this process, the loan is quickly pre-approved and they are fully underwritten quickly and efficiently.
Locating a Property & Executing the Transaction
CoBuy helps share the group’s information in a format that allows the real estate agent to begin a search immediately. The CoBuy-suitable™ listing page is always a great place to start. The group meets with their agent to review their details, discuss the search, offer and negotiation process and then they are off to the races.
Their agent arranges home showings around the group’s schedule to make sure they can all be present.
Before long, the group spots a unique property on CoBuy’s CoBuy-suitable™ listing page. They view the home and decide this is the one. Thankfully, they are well prepared for this step and the agent is able to put together a compelling offer.
While they wait to learn if their offer is accepted, they can begin to focus on the operating and ownership particulars about which they all have some uncertainties and apprehensions.
Determining Ownership Structure
The group’s budget determination was a big milestone. The decision to share ownership evenly with equal down payments and different contributions to the monthly mortgage payment was equally monumental.
These are decisions for which there are no “right” answers, only guidelines. CoBuy provides the tools for deciding what the group determines is “fair”. With some information regarding best practices, options, and an understanding of how others have solved for these determinations the group is able to decide what makes sense for them.
The threesome dives into the newly unlocked CoBuy Agreement question set on CoBuy’s website.
Olivia takes the lead completing the group’s questionnaire based on their conversations to date. The group gets together to discuss the questions and answers.
Together, they determine what needs more attention, consideration or counsel. CoBuy provides information that walks the group through the differences between taking and holding title as “Joint Tenants” vs. “Tenants in Common” vs. Forming a Partnership or LLC.
After carefully weighing the pros and cons, the group selects Tenants in Common because each co-owner has separate titles to their divided interests and because each individual’s interest in the property passes to their designated heirs upon their passing.
Their biggest concern is that one of them will become involved with someone and that this will shift the dynamics of their living situation and, possibly, their relationship.
In the interest of prudence, they decide to include an exhaustive list of “what ifs” that the CoBuy questionnaire outlines to provision for the worst-case scenario. They feel that this will allow them to rest assured, knowing there are no surprises lurking around the corner.
Preparing a Co-Ownership Agreement
“But wait…there’s more!” says CoBuy.
With all of the “what ifs” addressed and a plan in place, CoBuy advises that the group members each take the CoBuy Agreement to a CoBuy-certified™ attorney who can ensure that each member has considered all of the intricacies of their agreements. This also ensures that the agreement is properly set up and the group can ensure that the document’s existence is recorded on title.
One of the benefits of working with CoBuy, is that the attorney’s fees are reduced compared to working outside of CoBuy’s ecosystem where the agreement is not scoped and the attorney and group members are starting with a blank page to codify an ownership agreement.
The attorneys confirm the manner in which title is being taken and held, the group’s decision regarding their ownership percentages, and any unintended outcomes that the groups’ choices may present. The group is also offered a connection to a CoBuy-certified™ CPA for assistance in determining the tax implications and opportunities for deductibility of interest, etc. against their incomes throughout their ownership.
Identify and Address the Risks Associated with Joint Ownership
As a final step, the group works with CoBuy to select any desired insurance solutions to protect against (unlikely) events such as injury, sickness, or death. They also walk through their “exit options” one more time. The group opts to put a 2-year “blackout” period on the “exit option.” If a group member decides to exit the arrangement after the two year black out, they have a prescriptive series of events in place for valuing and deciding how to proceed.
If one member decides to leave the arrangement and isn’t ready to sell their shares of the home, the group agrees to allow the departing member to rent out their room to cover the mortgage costs, pending unanimous consent of the tenant.
If the departing member decides they want to sell their portion of the home, the other members of the house have a first-right of refusal to buy the departing member’s ownership interest in the house.
If the remaining group members are unable to do that, they agree to a 3-month search period for a replacement CoBuyer that has the necessary inputs for a successful refinance. If they can’t find anyone in 3 months, the group agrees to elect a sale of the property as a last resort.
CoBuy also helps the group put a plan in place for how to establish fair market value of the property, how to divide up proceeds and gains on the property, how to pay taxes on the income earned and even how to parlay this sale into their next purchase.
For this threesome, the purchase constitutes the most significant financial consideration they have made in their adult lives, even exceeding their families’ expenses for college.
They made the decision to give the purchase of a home together the consideration that this foundational move deserves. They are thrilled to have secured a property they love at a price that actually improves their standard of living, especially after the tax implications are considered.
A year later, the group is happy in their new home. Every so often they cringe every time they look back at the numbers and think about how much money they would have thrown away if they had kept on renting.
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