Co-ownership: An affordable housing solution

Jeff Hulett
Apr 19, 2023
4 min read

Updated: Apr 28, 2023

There is no question, housing has become less affordable in the U.S. and many developed countries. [i] In general, home prices are increasing faster than many people's ability to pay the regular mortgage payment. Housing demand continues to outstrip housing supply. Our challenge to build is often a local challenge, with many localities creating frictions restricting supply. Housing stock may take many years or decades to adjust. This is the classic economic environment driving higher home prices.

But even given these challenges, homeownership is still a foundational wealth-building pillar of individual or family's personal balance sheets. U.S. homeownership remains one of the greatest mass wealth-building engines ever created. So getting on the housing ladder is super important.

In this article, we discuss Co-ownership. This is one of 4 alternative home-buying strategies. We call them "alternative" because prior generations did not face such a high home-buying hurdle. Even though the hurdle is higher than in earlier times, with a little adaptation, home ownership is very doable. We discuss these alternative home-buying strategies in our article:

Homeownership is an important wealth-building platform

Check out this article for more homeownership strategies and tools.

Co-ownership: Most people think of joint ownership in the context of a married couple. A little-known but growing trend is toward multiple joint owners that are not married. It could even be more than 2 people. Because homes have become less affordable, co-ownership is a way for a group of people to pool their resources to buy a home together. It is a way for people that may not have enough income and assets separately to come together to buy a home. Your first response may be, "I have never heard of this...is this even legal?!" The answer is "absolutely." The law is silent on what constitutes a joint housing relationship. Married couples buying a home is a cultural habit, but not required under the law. The buyers and guarantors of most U.S. mortgages are Fannie Mae and Freddie Mac. They allow co-ownership.

As you can imagine, a co-ownership relationship could get tricky. It is important that all co-owner members are aligned on their criteria for buying the home. It is important all members understand "joint and several liability" in the event one of the members walks away. Also important is alignment for exiting the home-buying relationship. What if someone gets another job in another location? What if someone cannot pay their fair share? In my experience, a well-crafted operating agreement is essential for documenting member expectations, including the exit criteria. The operating agreement does not need to be long. The operating agreement is helpful to bring all members together and encourage healthy conversation. My two younger sons entered into a co-ownership agreement to buy a home. They had 4 co-owners, my two sons and two of their friends. My son Daniel said:

"The operating agreement was critical, it helped us all get on the same page. We had good discussions upfront to head off any future misunderstanding."

Please see this link for a sample co-ownership operating agreement.

In the initial stages of house hunting, getting all co-owners aligned with buying criteria is critical. This is challenging enough for a married couple, adding more and/or unmarried people increases the home buying alignment complexity. Fortunately, there are homebuyer tools that help homebuyer teams come together on buying criteria and applying that criterion to their targeted home alternatives. These tools help people remember what they saw on a househunting trip and combine perspectives. These tools are a helpful differentiator for buyers' agents, as they work easily with smartphones and apps most popular today. The app helps buyer agents facilitate the buyer's decision process - using convenient technology that complies with anti-steering requirements. Katie, one of the co-owners said:

"The homebuying decision app was great. I felt like my voice was heard and it helped us come together and build home buying confidence."

Check out our article for more information and the app - Homebuyer’s Choice by Definitive Choice.

Making the best home-buying decision

Notes:

[i] By comparing a primary inflation measure (the CPI) to a home value measure (the S&P / Case Shiller home value index) -- home values have been growing faster than purchasing power. This reduces housing affordability. This trend has been accelerating over the last 50 years. Lower mortgage rates in recent decades have helped offset homeownership costs.