Sign of the Times: Companies Emerge to Help Friends Acquire Deeds Together

A form of co-ownership called the tenancy in common is picking up steam across the country.

Four years ago, a Los Angeles company started turning single-home properties into townhome associations where co-buyers could share living spaces. Then we saw “upzoning” laws take shape. California’s Senate Bill 9 allowed single-unit property owners to split their parcels into multiple housing units. Surely, it seemed, a long-term trend had been set.

Now, the lending industry is reshaping itself to support the co-buying experience.  

Young Buyers Pool Resources. Lenders Take Note.

Gen Z is a co-buying generation. Maybe it has to be. Most aspiring deed holders aged 30 and younger say their incomes won’t let them cover purchase and mortgage costs.

Yet plenty of young adults have rent fatigue. Many have a strong desire to finally start building equity in their own homes. If going it alone is financially impossible, people will build equity together, by co-buying.

So, is anyone really up for this? As a matter of fact, yes.

One in three young adults are open to pooling their funds to buy homes with friends, co-workers, siblings or other non-romantic partners. Fewer than a fifth of millennials, who are now over 30, would do the same. But that means some would do it — and they are doing it.

All told, 15% of U.S. adults have co-purchased a home with someone who’s not their life partner, according to recent reporting. But not all buyers do it with the same goals in mind. Under-30s want personal residences. Older buyers tend to be interested in pooling resources for investment properties.  

All the while, lenders are listening. They’re prepared to help unrelated co-borrowers apply for loans together. They accept credit models that help unconventional borrowers qualify—by adding rent, utility, and phone payments into credit profiles.

And financial companies now exist specifically to guide shared purchases.  

Tech Companies, Meet the Tenants in Common

Online real estate company Opendoor Technologies confirms the trend. Opendoor told Fortune that co-buying is on the rise among first-time homebuyers. But the legal category of this style of co-ownership, the tenancy in common, isn’t new. It’s just receiving more attention in an ongoing affordability crisis.

But how does a co-buying plan come together?

Co-buying involves multiple agreements: between the buyers; between buyers and the seller; and between borrowers and lenders. To make it all work, Seattle-based CoBuy offers a service to hold co-ownership agreements (“joint ventures”) on the Algorand blockchain.

“Co-owning with buddies is complicated. With Co-ownerOS™, it’s easy.” That’s CoBuy’s motto.

The collaborative approach to acquiring a deed is changing the way chains of titles operate over time. Without the traditional rights of survivorship that many life partners want, non-romantic co-owners need different rights. Co-buyers want to be able to sell or borrow against their own shares, on their own timelines. With a tenancy in common, they can. There’s no need for co-owner consent.

What’s on the Deed?

There are different ways to vest a co-ownership on the deed. With a tenancy in common, each owns a percentage of the property and can pass it on as they wish.

(This is an alternative to the joint tenancy style of vesting a deed. Popular with married couples, a joint tenancy with rights of survivorship lets co-owners seamlessly leave each other their share when one passes away.)

Tenants in common can be a duo or a larger group. They can be related or unrelated. When co-owners acquire a property as tenants in common, they should:

• Specify what form of vesting will appear on the deed.
• Declare their specific share percentages. Each tenant in common can hold any percentage of the home value. The deed will state their ownership percentages.

Why would one owner want a larger portion of the home’s value? Because that person is the primary buyer. The other person might have stronger credit, and co-purchase the home simply to help the financially weaker person onto the homeownership ladder. (A lender may insist that the additional co-signer on the loan be named on the deed, even if they don’t intend to live in the home.)

What Kind of Legal Agreement Is Needed?

Co-owners’ expectations and duties should be laid out in a signed agreement, separate from the deed. This document should be drafted (or at least reviewed) by an attorney. To avert misunderstandings, the agreement must cover:

• If one co-owner lives in the house exclusively, or if the arrangement involves co-habitation.
• A date by which refinancing and title transfer must happen if one owner is expected to achieve improved financial footing and become the sole owner. Note that unmarried tenants in common are taxed when selling their shares of real estate. Capital gains may be excluded from tax under IRS rules.
• The percentage of ownership each buyer holds, and who will live where, and maintain what.
• What happens in case one of the co-buyers dies. Tenants in common may leave their portions of the property to beneficiaries through their wills. Yes: Each deed  holder should have an updated will.

• Pet rules. (Be sure to read up on your state and local pet rules first.)
• Who will pay various costs and fees in the buying process.

• Who will cover the monthly mortgage loan payments, insurance, association fees, taxes, and other routine expenses.
• How the co-owners plan to fund home upkeep, replacements, and repairs.

Think about what should happen if someone doesn’t follow the agreement. Of course, the best way to prepare for this is to select thoughtful and trustworthy co-buyer(s).

Preparing for the Future

Your eventual decision to sell the home is as important to plan out as buying is. For example, you and your co-buyer might put language in your agreement, each giving the others a right of first refusal when a co-owner wants out, for fair market value.

Parties to the agreement should also specify that the original agreement applies to any new co-owner who later comes into the tenancy in common, if the co-owners anticipate that possibility. The current group will convey their deed to the new group.

Important note: Deeds.com has no marketing affiliation with any companies we name here. We’re sharing our findings with readers, and not making recommendations. Your own due diligence is always indispensable! Do review state law for any applicable requirements for drafting a co-buying or co-ownership agreement. Check for “tenancies in common” in particular. A lawyer can guide the deed and agreement drafting. Sign the documents with a notary and witnesses. Each co-buyer should have documents reviewed by a personal lawyer, hired to advise the individual client.