Breaking Into the Market: Co-Buying with Family or Friends is a Growing Trend
Co-buying isn’t new, but it’s a growing trend with more support from financial institutions and the government. Especially for first-time buyers, buying a home with family or friends can make all the difference in affordability and building equity.
High prices and rising interest rates mean that many first-time homebuyers are priced out of the market before they even begin house-hunting. Without a substantial down payment from the sale of an existing home, breaking into the market is getting more challenging every year. Add to that the rising student debt and stagnant wages, and the outlook can look very bleak for many Canadians.
At the same time, societal changes like remote working, some kids in online school, and pandemic-fueled physical distancing mean that people are looking for more space at home, both indoors and out. With remote working becoming a lasting trend people are looking for home office space, preferably without the noise or distractions of others who are home. The possibility of pandemic-type situations in the future means that buyers are thinking about potentially having kids home for online school, or about having outdoor space where they don’t have to worry about crowds.
What’s the not-so-secret recipe that gets you a home (or more home) with less expense? Co-buying. Whether buying with extended family or friends, co-buying is a growing trend, especially in Canada’s most expensive markets.1 Statistics Canada revealed that multigenerational homes are the fastest growing trend in household makeup, making it possible for many to afford to get into the market or to buy properties they wouldn’t otherwise be able to afford.2
Financial Benefits of Co-Buying
Purchasing Power: Sharing the cost of a home purchase with friends or family means you’ll have a larger down-payment, a larger collective income, and potentially greater stability for your ongoing housing costs. It also means more resources to deal with initial purchase expenses such as closing costs, new appliances, and any renovations or remodeling needed to customize the home for shared uses.
The federal government’s 2022 budget includes plans for a multigenerational home renovation tax credit to support aging adults and individuals with disabilities living with families.3
More house for your home: Combining resources among a group of people, whether family or friends, increases the range of options in terms of the size of the property. Necessarily, more people will need more bedrooms, but perhaps a large backyard or swimming pool is now an option, or a range of work-from-home offices throughout the house. With more people in the home there will be a greater number of needs to consider.
Greater buying power also means more options in terms of location; you might not have to look so far afield to find something in your price range. More options means more ability to accommodate everyone in the home.
Day-to-Day Financing: Meeting the day-to-day requirements of maintaining a home can be a financial or laborious burden. More people to lend a hand means chores get done, maintenance gets attended to more regularly, and the home value is preserved. More incomes to commit to bills, to commit to maintenance professionals, and to save up for big ticket items like roofs, means those things are less likely to slip.
Equity: One of the less immediate financial benefits of co-buying is that all the co-buyers will be building equity as the home increases in value. This may lead to each party having a sizable down-payment of their own to buy a home down the road, or it may mean the beginning of an equity leapfrog to buy several more homes together. Co-buying with parents might mean a secure financial legacy to leave to children.
Social Benefits of Co-Buying
There are social benefits to sharing a home. Obvious share-the-labour ones like grandparents to drive kids to hockey practices and more people to share meal prep, but also broadening the variety of skills, interests, and experience increases the possibility of getting projects done, whether DIY home improvements, holiday planning, or star gazing because someone brought a telescope – and knows how to use it.
We all need people. Researchers found that loneliness was the mortality equivalent of smoking 15 cigarettes a day.4 Other researchers have explored the health benefits of regular hugs – and lots of them. In Virginia Satir’s words, “We need 4 hugs a day for survival. We need 8 hugs a day for maintenance. We need 12 hugs a day for growth.”5 Having built-in social supports alleviates isolation – a boon in times of physical distancing. With 28% of Canadian households having only one person living in them, it remains to be seen what effect the pandemic has had on them, and consequently on co-buying stats going forward.2
Feasibility of Co-Buying
The economy is making co-buying necessary for many, but how feasible is it? There are challenges to cohabitating. Challenges to financial comingling. Challenges to agreeing on... well, everything. Some families have a long history of intergenerational living, with a culture of cooperation and roles and responsibilities well understood by everyone. Many do not. Figuring out those roles and responsibilities from scratch will be a learning curve.
Developing a balance between privacy and communication, between quiet time and social time will take some conversation and some experimentation. Being clear upfront about what everyone’s expectations are regarding “house rules”, how we treat one another, and how tasks and expenses are shared, will help reduce friction going forward.
Sharing a home – a real estate investment - means sharing the financial risks, so financial transparency will be necessary. Impacts to one party’s credit can impact the investment and consequently everyone’s credit. You’ll also need a prearranged exit strategy so that you don’t end up selling unexpectedly, and potentially at a loss. Will you wait for increased equity and then each buy your own home? Will you look for another co-buyer if someone wants to cash out? Legal counsel is a good place to start if you are thinking of co-buying with friends or family.
The good news is, many home builders are investing in new home construction suitable for multigenerational families or co-buying friends. So, ask yourself, where’s your dream property and who do you want to live there with?
Are you ready to take the plunge into homeownership? FairSquare Group Realty can help. FairSquare Group Realty supports Canadians by providing real estate experiences with incredible rewards: sellers save thousands in commission and buyers receive $2.000 cash back* when they purchase a home with one of our REALTORS®. Call 1-855-999-9740 to learn more.