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Buying real estate with friends or business partners often seems like a good idea, but it can be an exasperating experience when it goes wrong. With homeownership and investing becoming increasingly difficult amid high interest rates and property prices, more people are turning to “friends with benefits” to get on the property ladder.

According to the National Association of Realtors, the average age of first-time homebuyers has increased from 35 to 38 over the last year. NAR data shows that first-time buyers had a median household income of $97,000, up from $95,900 the prior year and reflecting an increase of $26,000 in the last two years. Repeat buyers had a median household income of $114,300, up from $111,700 the previous year. 

It’s important to remember that those numbers represent a national demographic. Buying is even more prohibitive in pricier neighborhoods.

Co-Buyers Make Up 30% of U.S. Home Sales

According to cobuy.io, a specialized app that helps co-buyers with documents and information for a $270 flat fee, co-buyers today make up 30% of all U.S. home sales.

Half the co-buyers in 2024 bought with a spouse or partner, 9% bought with a relative, and 7% with a friend, per Zillow research. The overriding reason people co-bought houses was financial. According to Bankrate’s 2024 Down Payment Survey, over 50% of respondents said that finding the cash for a down payment was out of reach. 

“We became co-owners of a brownstone in New York with three friends, where we still live,” Nick Allardice, 38, who co-bought his home with friends in 2021, told Business Insider. “The brownstone was easier for us all to afford because we pulled together and saved on all the costs associated with buying a property.”

“There’s been a ripple effect, too,” Allardice continued. “In 2022, three other friends replicated our exact model a few blocks away in their own three-unit brownstone.”

Non-Spousal Co-Buying Is on the Rise

Unsurprisingly, co-buying is most common in pricier states such as New York, California, and Washington. Non-spousal co-buying is particularly on the rise in these states. Co-buy.io and Nestment.com focus on helping buyers navigate this arrangement’s legal and logistical aspects.

“For the past 50 years, property prices have way outpaced wage growth, and that’s created an incredibly large gap,” Nestment founder Niles Lichtenstein told CBS News.

Though co-buying has some similarities to syndication, co-buying usually applies to small multifamilies (of two to four units) or sometimes larger single-family homes with multiple floors, and more buyers are generally on an equal footing investment-wise, putting these properties in a class by themselves.

“It was important that everybody understood we were not roommates, but had two distinct units connected in a home,” Harlem, New York, brownstone co-buyer Claire Breedlove told the New York Times. “We plan to live as neighbors, not roommates.” She and her co-buyer and friend, Charlotte Renfield-Miller, invested in a two-family brownstone that was a former art gallery and cost $2.795 million, with annual taxes of about $8,500.

“We tend to see eye to eye, but we wanted some sort of legal structure to make sure our friendship was never going to suffer because of a co-purchase,”  Renfield-Miller explained.

The agreement covered future possibilities, such as one person wanting to move or sell. “If anything does arise, we already know what the plan is without having to come up with it on the spot,” Renfield-Miller said.

Advantages of Co-owning Investment Properties

• Easier to qualify for mortgages: This is the main reason for co-buying. Qualifying for loans has become increasingly difficult in recent years.
• FHA mortgage compliant: One of the attractions for co-buyers is the ability to purchase a home with an FHA mortgage and enjoy tax benefits based on the percentage owned. 
• Scale faster: Co-buying allows investors to scale faster, moving from one house to another using FHA loans and renting the home out after a period of living in it to satisfy FHA requirements. Or, you can simply buy a rental property with an investment partner.
• Divided costs: This allows co-owners to split costs and share household responsibilities. However, as with any investment, it relies on trust and each partner being responsible for their side of the partnership. 

Disadvantages of Co-Buying

• Risk of conflict: As anyone with a roommate can attest, the risk of conflict when you live in the same space is heightened. If owner-occupants are co-buying using an FHA model, delineating each owner’s personal space and responsibilities is paramount. For non-owner-occupant investors, each must carry their weight and be responsible when financial issues arise.
• One buyer might want to sell or refinance: Both co-buyers need to be on the same page regarding their exit strategy with agreements.
• Financial stability: Job loss is sometimes unavoidable, but contingencies should be discussed and, if possible, put in writing should one partner suffer a loss in income and not be able to pay their share of the expenses. This could include allowing their other partners the option of buying them out. 
• Risk of differing goals and expectations: Goals and expectations can change over time. When one partner wants to go in a different direction, an agreement should be drawn up ahead of time to account for this.

Cash Flow and Equity

Owning rental properties offers advantages in cash flow and equity. In a co-buying partnership, there should be a clear agreement on how the cash flow is spent and the equity utilized. Vacations and fast cars should not be prioritized when building a real estate portfolio. 

Final Thoughts

Co-buying is easier when unrelated investors do not live in the same house. That said, co-buying and cohabitating can work if there is a specific game plan to sell or rent and move once an FHA or prespecified investment period has elapsed, so you are not stuck with one another if you do not wish to be. 

Business partnerships are nothing new. Many real estate investors have formed LLCs and embarked on money-making endeavors with the best intentions—only for the wheels to come off once things got tough, i.e., tenants stopped paying, and repairs were needed. 

No one likes dipping into their pockets when they don’t expect to. Entering into co-buying ventures requires both partners to have their eyes wide open, with an agreement that spells out each partner’s responsibilities, with consequences if they do not fulfill them, and easy exit strategies. Paying for unnecessary legal fees in a lawsuit between co-buyers is a scenario to avoid at all costs.