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Personal Finance For Women

Buying a Home with Friends…Brilliant Move or Disaster?

July 24, 2024

Spending & Saving


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Millennials are taking matters into their own hands with the dueling crises of housing unaffordability and loneliness…by buying houses together. Brilliant move or total mess? We’ve got the inside scoop on both outcomes.

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Our show is a production of Morning Brew and is produced by Henah Velez and Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is President of Morning Brew content and additional fact checking comes from Scott Wilson.

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Katie:

I have a lot of mixed feelings about our episode topic today, because on one hand I just wrote an essay about the way capitalism atomizes us, transforming us from humans or civilians taking part in a rich civic life into consumers of commodities, and how a corporate interest driven focus on rugged individualism often means you’re going to find yourself forced to pay for everything that you need by design. The modern model of the nuclear family itself, two adults, a kid or two under one roof, living apart from family and friends, often in a suburban setting that is not easily traversable without a car is a gateway to feelings of isolation and loneliness for many Americans.

For those reasons, you might assume that I’d be thrilled by the trend we’re discussing today, people buying homes and living with friends. And in some ways, I suppose I am, designing a life that’s grounded in community and friendship and sharing the burdens of life sounds on the surface it could only ever be a good thing. But there is an element of this story that I can’t help but feel just a little bit disgusted by, which is that people are choosing this route because they feel like they can’t afford long-term housing security any other way.

So I’m going to attempt to walk kind of a weird nuanced line. Yes, it’s great that young people are thinking outside the box and using the tools available to them and creating living situations with more community. And also, as long as housing is a means of preserving and growing your personal wealth, we are constantly going to be forced to devise new ways to make it work.

But before we get too lost in the sauce, let’s quickly review what every article on this topic tends to do piece by piece: We start out with the fact that housing on affordability is nuts, that Gen Z is down to get creative, and people are buying houses with friends, and here’s two friends who have done it. Bing bang boom is positioned as something that is on the rise that unmarried millennials are 10 times as likely to buy a home with friends as the boomers were. This statistic usually takes on the same tenor as those in the late 2010s, which boasted that millennials just like the instability and flexibility of gig economy jobs and nobody wants to work anymore. No one wants those dusty pensions or healthcare if it means they have to work for an employer that doesn’t decorate their office space with ping pong tables.

Welcome back to the Money with Katie. Show my rich friends. I’m your host Katie Cassan, and today we’re diving into the trend that both makes me proud to be a scrappy millennial and also frustrated that our country has failed its young people to the degree that an increased number of us must devise clever workarounds to keep the wheels on this train down the tracks.

Before we get into the numbers, let’s talk about the particular cultural moment we’re in right now and the cost of living, which is a dystopian phrase if you think about it for even a second too long and community. There’s a great YouTuber named Tiffany Ferg who has a video that calls into question the tough edit that adult cohabitation has pointing out that we exist in a moment in history in which living and splitting resources with a romantic partner is, it’s good, right? It’s the standard, it’s the norm, but adults who are not romantically involved choosing to do so get the side eye. People older than 30 who choose to live with roommates for financial or personal reasons are assumed to have somehow failed at achieving this supposedly superior model for existence.

Today’s conversation provides us an opening to think twice about that assumption because a 2024 APA poll found that one in three Americans experience feelings of loneliness every single week, with 10% saying they feel lonely every single day. The phrase “loneliness “epidemic is common. An increasingly challenging economic environment is revealing the limits of individualism and what do you know? So is the housing affordability crisis.

So what would happen if we could save two hummingbirds with one eye dropper of sugar water? And if that analogy is lost on you, I invite you humbly to come follow along on the Money with Katie Instagram, which has become an inadvertent hub of my neighborhood’s hummingbird drama. What if we could lighten our cost of living burden and benefit from more community with one decision from the looks of it? That’s exactly what some American young people are choosing to do. So let’s take a look at a few numbers…right after a quick break.

Entering the housing market with a single income has always been difficult, which is why married couples have historically made up the largest percentage of home buyers in the US but in recent years, researchers noticed people were coupling up in a different way. 15% of Americans have co-purchased a home with a non-romantic partner, and one in four said they couldn’t have afforded it alone, which means three in four could have but chose to buy together anyway, which struck me as interesting and might mean that I need to eat my words about how people are only doing this because they have no other choice.

In 2023, 11% of first time home buyers bought with friends, a number that’s rising. And as Vice reported that in the UK there’s been a 21% increase year over year in folks buying homes with non-romantic partners.

And something you’ll notice in much of this coverage is the idea that the friends going into the home purchase are doing so with the intention of building financial stability. They might say something like, oh, this isn’t our forever home, but we’ve both lived paycheck to paycheck for so long that we want to build equity together. And on the surface, the sentiment passes as reasonable. But in the year 2024, it struck me as a little counterintuitive. The gap between the total cost of buying a home today and total cost to rent in this country has never been wider at about 30%.

Because much of this coverage focuses on how these friends see their purchase as an investment that they’re going in on together for the medium term and that if one of them decides in a couple of years they’d like to get married or do something else, at least they got a few years of equity out of it. But as diligent listeners of The Money with Katie Show know, depending on where you live and what type of interest rate you secure, it can take quite a long time as in decades for a house to become a financial net positive given the high transaction costs, high cost of borrowing front loaded interest and assorted unrecoverable costs. It can be 15 years before you would break even on your investment. And depending on the price to rent ratio in your area, you might’ve been better off just renting as roommates and investing the cost different anyway. No risk of ownership required.

Still, as we know, real estate is a blood oath in the US and for some friends or friend groups, buying a home to live in together is more than a financial investment. It’s a means of achieving a certain lifestyle in which you live with a community of your peers. But hopefully your group isn’t too big because believe it or not, there are still cities in the US where it’s illegal for more than a couple of adults unrelated by blood or marriage to live together. I’m pretty sure this dates back to the days of supposed brothel prevention, but who even knows. All this goes to say the infrastructure around home ownership from the lending to the legality was built with married couples in mind. So contracts written for unmarried unromantically involved cohabitating adults look a little bit different as they might feature clauses about property management or exit strategies that your typical agreement wouldn’t.

For all the ambivalence around breaking new ground in this way. One listener Shannon said, she was absolutely clear about how she felt:

Shannon:

It was the single biggest mistake of my life.

Katie:

Yeah, we’re not mincing words are we? Shannon bought her home in Florida in 2006, which if you know anything about what the US housing market and what was happening in Florida in 2006, you’ll know that that means we’re really not off to a great start.

Shannon:

I bought my first condo with a very good friend in 2006. We were both around the age of 24 and it was in Florida.

Katie:

And how did you guys approach the financing and legality of that purchase? I mean, 2006, that was nearly 20 years ago. So that’s like, I mean, I’m not sure if it was a quote trend back then the way that we’re thinking of it now, but I assume that was kind of unusual at the time.

Shannon:

Yeah, we went into everything 50/50 and so in that way she was a great partner, very collaborative. Candidly, we couldn’t afford to buy something on our own, and in our minds, renting was wasting money and so we lived at home saved for our down payment. We financed it using our combined income and our combined credit scores. And because we were both young, we kind of had very similar scenarios, so that wasn’t too hard.

Katie:

Okay, interesting. So tell me a little bit about what happened in the following years, and it sounds like things started on a decently solid foot, so how did we get from that to single worst mistake of my life?

Shannon:

So we split everything down the middle, which was excellent, and I want to preface that she was an excellent roommate and a good friend. We did not buy at the right time. We absolutely bought at the height of the market, and so we overpaid in a way. I really think we had this idea that renting was just such a waste of money that we didn’t explore it in the way I think we should have. And so the reason I say that is because inevitably at 24, she took another job out of state. We then had to sublease. There were just a number of life changes that happened and every single change, anything we wanted to do with our condo, we had to agree on. And so she was not ideal when it came to agreeing to changes or really wanting to make many changes, whether that was refinancing or paying off a piece or selling it. And so that was the challenge is you’re really stuck doing things with this person and as you continue to grow and develop, you’re not on the same life path.

Katie:

What ended up happening to the condo? Did you sell it? Do you still have it?

Shannon:

We eventually sold it in 2021. After a couple years, both of us were no longer living in it. I think that was another piece because we had to compromise on buying it together. I don’t think either of us really loved the home. It was more just something we could afford that met both of our needs that we could agree on. We ended up paying so much more in interest and expenses over the time of the mortgage and the loan, not to mention HOA expenses, different repairs that were required. We had a number of tenants. We had one that we had to evict for nonpayment. We had a hoarder that just completely destroyed the interior. So with each one of these decisions, we had to agree on what to do together, whether we were going to evict them, whether we were going to pay to refurbish the interior of the condo.

So all of those decisions were just made much more challenging because we both had to come to an agreement and oftentimes we were at odds on what to do. Secondarily, and I don’t know how common this is, but I think back to how young we were, our parents were very involved. This was a family friend and her mother continued to be incredibly involved in her life, and so it was almost like having a third owner who had an opinion on everything. And so that just made it really frustrating trying to work through those challenges.

So we did sell it in 2021. We drifted apart as friends at this point, but candidly, even selling it, the challenges around selling it, whether we repaired the pipes before we sold it, what agent we used, it really got us to the point where we no longer speak. So it just completely destroyed our friendship.

Katie:

Shannon’s right: Buying an asset of this size with another person is incredibly serious and it should be noted that she’s not the only person that we heard from for this episode who had a similar experience noting that they got totally burned by the person they purchased with. You can’t evict a co-owner. So if something goes south and they stop paying that’s on you and falling behind on their half of loan payoff will affect your credit score too.

This is why some experts recommend only buying something that you could service payments on a loan for a few months in the event of job loss or conflict. This was a common thread. A lot of sources emphasized just how risky this decision is, how buying property with another human puts you in a vulnerable financial position. And I have to say it struck me that many of the risks listed for co-owning with friends, the friendship ending, someone losing their job, different life visions were all risks inherent in buying a home with your spouse too.

So while buying with a close friend definitely carries risk so too to the alternatives. Buying a loaner with a romantic partner is not risk free, and yet we rarely hear about the dangers of plunking down a deposit with your husband or taking on the single concentrated asset risk of plowing your entire net worth into a single piece of property that has an uncertain future. It’s common for married couples to get into a dispute over who retains the home in a divorce, and it’s not uncommon for the adult who gets to stay to be unable to pay for it on their own.

Buying with a friend may carry different risks, but if we were analyzing all of these scenarios fairly, I’m not sure they’re as different as they may appear on the surface, buying as a couple or buying a loan just so happened to be a lot more common and socially acceptable than buying with a close friend or two. Still, Shannon said that she has experience with both and that there is no comparison.

Shannon:

It’s a huge difference because I think most people see a divorce as being really complicated and difficult, and I bought a home with my first husband. We had to sell that and split those proceeds, but because it was a divorce, one, because we were married, we took the time to make decisions and compromise on our values as a team in a way that you just don’t, at least I didn’t in a friendship. So we were having those conversations. For example, if my husband was going to take a job somewhere else, I was considered and consulted and that was normal. That’s not normal in a friendship to consult your co-owner.

Katie:

It’s a really good point.

Shannon:

And then secondarily, when you get divorced, if you get to a sticking point, there’s arbitration, there’s conversations like it is a legally binding agreement, I guess, partnership, and there are ways to move through that. So it was just more formal and I think that really helped us. It was a piece of cake, truly. We didn’t have an attorney. I was able to divide all of our assets, whereas this condo, I would’ve loved to have gotten out of it 10 years earlier than we did.

Katie:

I speculate that one of the reasons this trend is on the rise is because people are generally getting married later in life, particularly young women. In 1960, the median age at which a woman entered her first marriage was 20 men. Were around 23. You’re out of your parents’ home and right into your husband’s with whom you’d buy your first home as quickly as possible. Today, the median age for women’s first marriage is 28, 40% older.

In 1960, the average first time home buyer was 23 years old. Today it’s 36. From this perspective, young unmarried women have the ability and freedom to own property on their own, and that’s a relatively new historical phenomenon. I will take this opportunity to remind all of you that women could not finance real estate without a male cosigner until the 1970s. If single women are interested in home ownership but aren’t in romantic relationships, this model says payers or more of single women can share the benefits and distribute the costs of owning no marriage necessary.

A similar but slightly different path that’s become popular in the last decade is house hacking in which you buy a home on your own, but then you allow friends to live with you in it and pay you rent. And this is I think, a different take on the concept of buying a home together. But co-buying means you’re not just bearing the legal and financial risks yourself, you’re approaching it more equally. So a landlord tenant relationship is fundamentally different than a co-owner relationship.

We’ll be right back after a quick break.

For those considering the idea experts advise crafting a formal written co-buying agreement that includes terms for various scenarios, including ending the arrangement or options to buy out a friend who chooses to leave, what happens? Does that person sell their share to the others or rent it out to someone else? It doesn’t have to be 50/50. Per Bankrat, joint tenancy, which allows multiple equal stakes in a property, is a common arrangement for married couples and can also work for friends who intend to co-own their home. Tenancy in common is another type of ownership setup where co-owners can divide stakes in the property, 25% and 75%, for example, or one third each for three people. Regardless of what ownership arrangement you choose, you will want a written agreement drawn up. They also recommend writing up cohabitation agreements. CNET told the story of a polycule who went in on a house together who were surprised by how few hurdles they had to jump through, and how had three incomes made the process a lot easier. I will say that living with my husband and a boyfriend sounds like my personal help, but to each their own.

But what you’ll find in all of the reporting about this topic are success stories like the 23-year-old twin sisters in Houston who bought a home together and don’t understand why people find the decision to be so dangerous. Two different women, the Grant sisters told Architectural Digest, it’s not as binding as you sometimes think it is. The Grant sisters have talked about future plans for their home, whether it be renting it out, listing it on a platform like Airbnb or VRBO or even selling it and say it’s liberating to realize there are plenty of exit options that could financially benefit both of them. Another pair, the Lindsey sisters felt similarly and they told AD, “When it’s time, we would have that conversation and see where the other person’s head is at and do what’s best for both of us.”

Still, I noticed most of the people who speak highly of the arrangement in these articles are either still living together or are related to one another. So I wanted to talk to people who had a positive exit experience. The first woman I spoke with was named Cindy. She was on vacation and unavailable for an interview, but she summarized her story for me over email. She bought a duplex in Massachusetts with a friend in 2003, and they had the intention of turning their property into condos. They had one mortgage to begin with and a partnership agreement written up by a lawyer. Despite taking these legal steps, it took a really long time for Cindy and her friend to figure out how to convert it successfully 15 years. She said her friend always rented out her unit while Cindy lived in hers. And according to Cindy, this became kind of a nightmare. They aren’t friends anymore, but she says she does love her home and she knows she couldn’t have afforded it without her. So ultimately it doesn’t really sound like Cindy regrets it.

Another listener, Christine said The experience was not without its ups and downs, but was overall pretty great.

Christine:

My name is Christine and in 2019 I bought a 1500 square feet ranch style house in Austin, Texas for $330,000 with a friend. It was listed for $350,000, but we had a good estate agent who talked them down.

Katie:

Oh, go off. I love it. That’s awesome. So $330,000 in Austin in 2019. I’m curious how you would characterize the decision to buy a house with your friend.

Christine:

It started with alcohol. We were spending time together and alcohol was involved and we talked about how we wanted to own property, but we’d never be able to do it on our own. We should just do it together. And the next day it sort of came up. Were you serious about that? The question everyone asks is what about your friendship? And my response to that was there are a lot of different ways to lose a friendship. We could buy a house together, lose a friendship, but make money. And at that point in time, Austin, Texas was the number one place for real estate investment in the country, and I was like, or we could lose a friendship a different way. I am really happy to say that Sarah and I are still friends. So our friendship lasted and I would like to believe better for it, especially because we did the pandemic together.

Katie:

So you bought in 2019. Do you still own it? Are you still there?

Christine:

No, we no longer own it. Sarah and I bought the house, moved in end of September, 2019. We were like, this is great. I was dating someone pretty seriously at that time. She knew him, he knew her. They had a friendship and pandemic happened and my now husband moved in. She was actually the one that said, I don’t want someone going back and forth with the pandemic. There’s a lot of uncertainty. I would prefer him to just be here and live in our bubble. So she’s the one that told him to move in. He moved in with us.

We got married a few months later, and then a year later, my husband and I were looking at a number of factors and eventually decided to leave Austin. So we sold the house. Sarah now owns her own home in Austin, Texas. That is better suited for her. And my husband and I own a home in Chattanooga, Tennessee, which is a little bit closer to my parents who are aging more quickly than I would like.

Katie:

So you don’t still own it. So at the time when you bought it, how did you approach the financing of the property and the legality around the contract that y’all had such that when it came time to sell just a couple years later, it wasn’t a huge headache?

Christine:

Sure, we figured that together we would be able to put down 10%. We both got pre-approved and my credit score was a little bit better than hers, but we were both over seven 20. Once again, my were like, well, how do you feel about the fact that your interest rate is not going to be quite as good with her? And I was like, it’s not something. I couldn’t own a house without her. And we still had an excellent rate. I mean, we’re talking was 2019, interest rates were low. When you purchase a house, you fill out the paperwork like a single woman, a married woman. So there are documents upon documents of my name and her name, Christine, a single woman, Sarah, a single woman to together, which was just fun.

And when I sold the house, I imagined this beautiful Sarah and I get together with a bottle of champagne and sign the documents together, sort of like we did when we purchased it. But Texas is a communal property state, which meant that I had to have my husband sign the paperwork as well. Oh no. And I then became a married woman, and I thought it just felt like kind of a buzzkill.

Katie:

Ultimately, Christine and her friend lived in the house for slightly over two years before their life circumstances took them in different directions. By the time they sold thanks to their location and market conditions, they each walked away with a solid chunk of change.

Christine:

If you flip a property and you make more than $250,000 in it, then you have to pay additional taxes unless that property is your primary place of residence. For over two years, we lived in the house for 26 months. We both walked away with a little more than $75K. And so I think it depends on how you look at it. For me, I don’t consider the mortgage. The mortgage was less than we would’ve paid it in rent. Interesting. So I see the mortgage. When I look at the value of the home, yes, we were increasing our equity, but if you want to do the math and how much we lost to interest, I would’ve lost that money otherwise. So that’s not worth looking at when you look at actually how much we took home, I put in $15K; left with just over $75K, so we made about $130K profit on the house.

Now you can take out expenses. We redid electrical, we did a lot of painting, which increases the value of a house massively. We replaced light fixtures, the attic door. I learned how to do basic electrical wiring, but we did spend a lot of money and also sweat equity on the house. There was a shed in the background that was a huge eyesore, and I tore it down single handedly after I finished a pretty wild consultancy for my own mental health, tore it on the shed, planted a garden, just did a lot of things to make the house more valuable. And then at the same time, the market in Austin was going wild because of the pandemic.

Katie:

Now that you’re on the other side of it and you both own homes separately, and it sounds you were in right place, right time, and you also had a really solid friendship it sounds like. How do you feel about the process now? It sounds like you think back on it pretty favorably. Is that true?

Christine:

Yes. It was a great decision financially, right? It definitely set us up. My next home, obviously I went to a less exciting market. I was able to put 20% down on a house. So I do think of it really favorably because it was such an empowering time for us, and I’m so thankful that I got to isolate with her during the pandemic. If I had been alone during that period, that would’ve been really tough.

There were a lot of ups and downs, and I think for me, one of the things was I have an idea of what I want to do that evening, and then she has someone over to the house and you can’t say ask permission to have someone over to the house, but it sort of throws off the vibe. Or I would have people over for dinner and we didn’t. There was no way Sarah would of course eat dinner with us. But then there’s also just a different dynamic with a one-on-one conversation or friends or another couple. So I do think there’s a lot of things like that that were tough, that if I had to do it again, I probably would’ve gotten a house with two common areas. I might’ve even done it with someone whose company I didn’t enjoy quite as much.

But I just think that it’s so nice to sort of have someone else, and we both cared about each other a lot, and were willing to sort of fight for that friendship or to say, we need to give this time.

Katie:

In the end, it was Shannon’s point about how she and her friend should have just rented together and saved their money separately that most stuck out to me. Vice’s reporting covered folks in the UK doing this and profiled a pair of friends who said the experience was not without its compromises and struggles, but that it ultimately allowed both of them to end up selling and moving into their own respective homes. Eventually, none of the numbers are shared, so it’s hard to know what percentage of this gain was on paper, what was their net gain. As we know that most people are not very detail oriented in capturing all of their cash outflows.

I also noticed that the vast majority of people I heard from for this episode’s research bought their homes kind of a long time ago, as in not in response to the current market conditions or what’s being positioned as a new trend. Nobody that I had heard from outside of real estate investors who reached out, had bought a home since the runup in prices for the reasons that we outlined here. So maybe this trend isn’t actually as popular as it might seem either way.

There you have it, a high-level overview of a trend or non-trend depending on how you’re looking at it. And usually I walk away from an episode feeling pretty strongly one way or the other, but in this case, I’m not sure my feelings have been clarified. That might be because I still have really mixed feelings about home ownership in general, at least in the way we currently approach it in the US.

A few months ago, I was interviewed for a Financial Times piece about young people rethinking the decision to buy, or at the very least, scrutinizing it a little more closely. And the journalist who’s based in the UK was surprised to hear that US mortgages aren’t portable. You mean if you move, you have to pay it all back right away. She asked reminding me that the US mortgage product is not something that organically grows from the ground or is dictated to us by the laws of nature. It’s a financial tool with rules that we could change if we wanted to.

In the UK, you can take your mortgage with you when you move and you can apply it to a new property. Meaning what you don’t see is the situation that we have now in the US which is a bunch of people stuck in homes that are either too big or too small for their families because they’ve locked in a really low rate that they don’t want to lose. I spoke with a builder in California a few months ago who noted that yes, supply is constrained, but it’s not as simple as it looks. It’s not just constrained because there aren’t enough homes. It’s because people are in the wrong homes or they own way too many. You’ve got elderly widows with 4,000 square feet, some people with third and fourth homes, while young families have none.

That example might feel like a totally different topic, but I think it’s related. Buying homes with your friends in order to afford them is ultimately a response to an untenable situation. And while I love that we’re trying to play the game differently, it might be worth asking if what we should really be doing is changing the rules.

And that’s all for this week, and we’ll see you next week to talk about money dysmorphia. Our show is a production of Morning Brew and is produced by Henah Velez and me, Katie Gatti Tassin. Our audio engineering and sound design comes from the fabulous Nick Torres and Morning Brew’s Chief Content Officer is Devin Emery. Additional fact checking for the Money with Katie Show comes from Kate Brandt.

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