Matt Holmes
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Co-owning a home: How to split ownership between co-owners

Have you ever considered co-buying a home with your friends or family members?  Or maybe you’ve floated the idea of co-buying a home with your boyfriend or girlfriend?  You’re not alone. Millions of people every year decide to co-buy a home across the U.S and have to consider how they are going to split ownership of the property.  Co-buying is when two or more people who are not married to one another jointly purchase a home.  The result is co-ownership. Co-ownership makes it possible to share the down payment on a home, the monthly mortgage payments, and ongoing costs associated with homeownership.

As with any shared arrangement, it’s important to clearly define individual contributions and collective expectations from the outset.  At CoBuy, we work with many different combinations of people looking to co-buy and co-own homes.  We are frequently asked questions about how to divide ownership in a property.  

  Is it possible to share ownership in a home with someone who isn’t your spouse?  

  Can co-owners divide ownership unequally?  

 Can each co-owner contribute differing amounts to fixed costs?

The short answer is yes.

According to Jocelyn Muhl, CPA at North Seattle Accountant, “Two or more unmarried individuals can own real estate either as tenants in common or joint owners.” It’s perfectly legal to buy and own a home with friends, family members, or your partner.  No two situations are the same, and there isn’t a one-size-fits-all methodology. How you decide to structure and split your relative ownership interests in real estate will depend on who is involved, what each respective co-buyer is bringing to the table, and what the shared goals are for co-ownership.

Can you own different shares?

Yes, co-owners can have unequal ownership interest in real estate depending on how the co-owners decide to take and hold Title. Title conveys ownership interest in real property, which is reflected in a written, recorded document known as a Deed.  Some co-owners who wish to split ownership unequally in a home may choose to take Title as Tenants in Common.  Tenancy in Common (TIC) allows co-owners to divide relative ownership interests in the property in equal or unequal proportions.  This could include an unmarried couple where one partner has a 40% ownership interest in the home and the other partner has a 60% ownership in the home.  Likewise, this could entail a five-way split between friends or relatives of a%, b%, c%, d%, e%, where the sum of these ownership interests equals 100%.

  The Legal Dictionary defines a Tenancy in Common (TIC) as a form of ownership of real property in which each co-owner owns a separate, distinct share of the property as a whole. This means that rather than owning a physically separate share of the property, such as a certain building or number of apartments, for example, each tenant in common owns a percentage of the value of the entire property. A tenancy in common is created through the use of a contract called a “tenancy in common agreement,” the property deed only showing each tenant in common’s ownership percentage.

How do you split ownership?

Carefully!  Ultimately, how you decide to split equity and your ownership in a home between co-owners is up to you.  What is determined to be fair or equitable is unique to each situation and the parties involved.  In the simplest case, each co-owner contributes equally towards the property in terms of finances and non-financial contributions.  This makes the decision of how to split equity straightforward.

In practice, when two or more parties who aren’t married to one another decide to buy a home together, the people involved may have differing circumstances.  One party to the transaction may be in a position to contribute more or less up front and/or on an ongoing basis. According to Jocelyn, “Unequal ownership is allowed, but make sure to have a written agreement about how expenses will be paid.”  There are multiple ways that folks who are co-buying property together choose to handle these situations.  Factors which may influence how co-owners split ownership in real estate include (for each party to the transaction):

  • Occupancy status: who is going to live in the property?
  • Access or rights: who will have access to the different parts of the property (e.g. three family members co-buying a home with 3 bedrooms as a primary residence with one co-owner occupying the master bedroom)
  • Financial contributions up-front to cover the down payment, closing costs, and pre-paids
  • Financial contributions on an ongoing basis to cover monthly mortgage payments, insurance, taxes and other costs associated with the home
  • Non-financial contributions (e.g. case where one co-owner will contribute sweat equity to remodel the kitchen or manage certain responsibilities on behalf of all co-owners)

At CoBuy, we work with buyer groups comprising a mix of occupant-owners and non-occupant investors.  Often these groups decide to factor in who will manage the property and who will be responsible for repair costs into the conversation when deciding on how to split equity in a co-owned home.  

We have also worked with CoBuy groups where the co-buyers decided to split ownership equally despite unequal financial contributions to the up-front costs (“cash to close”).  Regardless of the circumstances, we have found that a useful starting point for making a determination on individual ownership interests is understanding the inputs. Having a framework for a structured group dialogue can increase transparency for all parties involved and streamline the decision-making process.  The important thing is that all parties to the co-ownership arrangement understand each others’ respective contributions and reach consensus as a group as to what is equitable.

What else should you consider?

Whether you’re considering buying an investment property with friends or you want to buy a home with your partner as a primary residence, it’s important to get on the same page ahead of time. According to Jocelyn, “Unmarried owners may be more likely to relocate separately and therefore may need to sell their share of the home. There is no gain or loss to recognize on property transfers between spouses. For unmarried individuals, sales of property (including the sale of a partial interest), are taxable events. The Sec. 121 gain exclusion does apply to the sale of a partial interest in a home, so it may offset part or all of the tax.”

Unmarried owners may be more likely to relocate separately and therefore may need to sell their share of the home. There is no gain or loss to recognize on property transfers between spouses. For unmarried individuals, sales of property (including the sale of a partial interest), are taxable events. The Sec. 121 gain exclusion does apply to the sale of a partial interest in a home, so it may offset part or all of the tax.”

By addressing key issues up front you increase the likelihood that things will go smoothly for the duration of your co-ownership arrangement.  Once you have agreed on key aspects of the co-ownership arrangement, including how you split ownership in the home amongst co-owners, you’ll want to reflect these decision points in a written co-ownership agreement.

Understanding the implications from both a legal and tax/accounting perspective is also important.  By involving a licensed attorney or CPA at the right stage, you can minimize your downside financial risk and reduce the potential for strain on your personal relationship(s).

If you are considering co-buying property, CoBuy can help.  We make it easy to co-buy, minimize the time and cost, and help you protect yourself and your investment.  We can also connect you with CoBuy-certified™ professionals from our network of lenders, agents, attorneys, and CPAs at the right time.

For more info, check out CoBuy or subscribe to our mailing list.  Our platform simplifies co-buying a home with friends, family, or a loved one, from start to finish.

Disclaimer: Cobuy, Inc provides information and software. CoBuy is not a law firm or an accounting firm and does not provide legal or accounting services, opinions, or advice, nor is it a substitute for an attorney.