Joint Tenants: Owning Primary Residence With Others

Added February 28, 2009 by Ilyce R. Glink

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Summary: Deciding to own property with another family can be stressful, because of credit and finance implications if one family doesn't make mortgage payments. Ilyce suggests buying in a multi-family building, or buying as joint tenants or tenants in common, or having a real estate attorney help subdivide the property and turn it into a condominium. The most important thing when owning property with friends is to protect yourselves and make sure whether you're joint tenants, co-owners of a building that's turned into a condo, your finances won't be compromised.

Q: We moved a year ago from the sane real estate market of South Carolina to the insane real estate market of Southern California. We have become really good friends with another couple with young children, and we are all fed up with apartment life.

We're considering going in jointly to purchase a duplex giving us the comfort of owning a home, but payments that won't break the bank.

How do we approach a lender to do this? And what legal concerns do we need to handle in advance? The market is so hot here we know that we could easily rent the unoccupied half of the duplex if either of us decided to move on.

But I'm sure going into a deal like this is more complicated than it appears.

A: Of course it's more complicated.

If you both want to own (as opposed to you purchasing the property and renting to your friends), then you need to look for a multi-family building that has at least two units.

Before you do anything, think this through carefully before you do it. What happens if your neighbors fail to make the mortgage payment? Your credit could be tanked along with theirs. What if they simply disappear one night? You'd be on the hook for everything but wouldn't own the property outright.

You should think about how you and your friends want to own the property. You can buy the property as tenants in common or joint tenants. Or, you can hire an attorney to help you subdivide the property legally and turn your building into a condominium.

What's nice about turning your property into a condominium is that you separate the legal ownership of the property. You can sell at any time without consulting your neighbors and they can do the same. It doesn't get as messy.

Although attorneys are not normally used to purchase property in California, you should hire a real estate attorney to help you work through the issues relating to co-ownership of property. Often, individuals in your situation will draft a partnership agreement that spells out the nitty-gritty details of the ownership, management and financial responsibilities of each party.

Finally, spend some time with your friends discussing what kind of property they want, what is their neighborhood of choice, and how you can make this work out well for everyone.

Jan. 19, 2009.

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