More than just roommates
Did you ever have a roommate? I did when I was a 20-something and I think back on those days as both exciting and frustrating. The exciting part was all about having your own place. The frustrating part was all about paying the rent on time, closet space and cleaning. Some of today’s 20-somethings are taking roommate relationships to a whole new level, one that involves high stakes real estate transactions.
Time magazine recently introduced a new word into the vast glossary of real estate terminolog – co-ho, which is short for communal homeowner. Communal homeownership can be briefly described as two unrelated people, usually friends, who buy houses together – roommates with linked financial obligations.
As is typical of changes in financial markets, someone always benefits. In our existing soft real estate market, more opportunities have been created for first time homeowners to dive in. With this newest generation of homebuyers remaining single longer, many of them are not waiting for marriage and families before buying their first home. And why should they? Why shouldn’t two or more friends purchase a home to not only live in and enjoy, but also to provide them with a first step in building equity.
Typically co-hos split the mortgage, taxes and maintenance costs while taking advantage of the tax breaks and a more spacious and comfortable way of life. However, this lifestyle doesn’t come without some caution. Just like regular old roommates, someone has to do the cleaning up, pay the bills and deal with the next door neighbor. In addition, co-hos have to agree on improvements, decorating and house guests.
Because of this it’s not uncommon for communal homeowners to have a contractual agreement spelling out exactly what will happened if one of the owners, for instance, loses his/her job and can’t pay the mortgage or gets a job transfer out of state or wants to get married. These agreements can even spell out how long they agree to hold on to the house, either in number of years or amount of equity accumulated.
And what happens if one of the owners dies? It may not be fun to discuss but important when entering into a long term financial arrangement with a non-blood relative that you’re not married to. This could be partly addressed with the type of property ownership deed drawn at the time of purchase. Two individuals who are not legally husband and wife can have either a joint tenancy or a tenants in common ownership.
Joint tenancy property is owned by two or more people at the same time in equal shares. When one joint tenant dies, his or her interest automatically goes to the surviving joint tenant. Tenants in common property is owned by two or more persons at the same time who do not have to have equal shares. Upon death, the decedent’s interest passes to his or her heirs named in his/her will, who will then become new tenants in common with the surviving owners. Tenants in common, obviously, is the more desirable property ownership arrangement for co-hos, accompanied by a will.
Communal homeowners may be a throwback to earlier decades when living with extended family members was not unusual, only this time you can choose your family. Having a roommate is usually the first step to adulthood. Owning a home with your roommate is the difference between loaning your Jimmy Choo shoes and loaning your ATM password. Proceed with caution.