Q: A few friends and I went in on a house together. I made the initial down payment, and we split the mortgage payment each month. The plan is for them to save their share of the down payment over 10 years and pay me that amount while adding their name to the title. Was this the right way to set this up? Are there any negative consequences to our plan? — Victoria
A: Buying a property with friends is like going into business together.
These scenarios work out best if everyone understands their rights and responsibilities and the risks involved.
The best way to ensure a successful outcome is by making sure the plan’s foundation is sound.
Even when everyone is nodding along, there is no way to tell if everyone is really on the same page.
The best way to ensure this is to sign a written agreement. The written word has a certain magic — it takes an idea out of someone’s head and makes it real and better understood by others.
I often deal with people who say they are in sync until we start writing out the agreement and realize they had different ideas about the project. It is best to hammer out these differences before starting because discovering the problem after the fact is much more difficult and costly.
There are potential issues with the way you structured this.
For example, if the person in title unexpectedly passes away, the property might go to their spouse or children instead of their friends helping to foot the bill. Similar issues could occur if one of the other friends dies.
Problems could quickly arise if two or more friends have a falling out, or if someone stops making their part of the monthly payments.
There can also be tax consequences when it comes time to add their names to the title or sell the property.
Setting this up properly, helped by experienced professionals, is a small expense compared to the problems it can help avoid.
