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Tenancy In Common Unforseen Problems
Posted By Jim On 07/12/2005 @ 9:22 am In Personal Finance,The Home | 4 Comments
Have you thought about buying a place with a friend? With skyrocketing real estate prices these days, going halfsies with a friend sounds like a good idea. Tenancy in Common is a type of ownership registration where both parties own half the property independently. Joint Tenancy is the other common method and generally used by people who are married because ownership transfers automatically upon death, something you wouldn’t want in a business transaction. But what are the problems with buying a house with a friend? I once considered this but both his parents and my own vehemently discouraged it.
The first problem you’ll probably see if at the purchase itself. What if you can or want to put a greater down payment than your friend? Unless it’s 50-50, you probably won’t agree to only 50% ownership. Do they have to get a separate loan? Do they borrow from you? Your greater down payment means they pay less for their half of the mortgage (which is now smaller than before your larger down payment). That’s only one question.
Now how do you value each person’s share? Certainly, if you both pay 50-50 on the down payment and in mortgage payments, you each own half… but who gets use of the master bedroom? Typically you’ll calculate a value percentage for each of the rooms in the house and then calculate your actual percentage (bigger if you’re in the master, smaller if you’re not) and so all your common expenses would actually be split in this manner. But it still doesn’t answer who gets the master bedroom… that’s just one headache.
If you and your friend are able to go 50-50 in the property, then your agreement would state equal ownership in the property and equal vote in whatever decisions you would like. In general, routine decisions require only a majority but “expensive, non-emergency repairs or improvements require unanimity or a supermajority” (75%+). At 50-50, all decisions require unanimity. So what do you do if you want hardwood floors and your roommate doesn’t?
Finally, what if you want to sell your stake but your friend doesn’t and cannot afford to buy your half? Legally you’re entitled to sell your half but when was the last time you heard of someone buying half a townhouse from a stranger? Exactly. Unless you both want to sell (or your friend wants to buy you out) , you’re not going to get out.
There are a lot of other problems but these are the big hitters… but here’s one word of advice you should not ignore: get a lawyer.
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