Americans Are Buying Homes With Friends

In 2012, Kristina Modares, a young professional making $35,000 a year, was living in a rented old house in downtown Austin, Texas, with four friends. Despite her modest income, Modares harbored a dream of homeownership, one that seemed out of reach due to her status as a 1099 employee. Traditional home-buying methods weren't an option, but Modares wasn't ready to give up her dream.

Her journey into co-ownership was two-pronged. Financial necessity, and a desire to connect more deeply with her living space and the community around her.

Taking a leap of faith, Modares approached a friend to buy an investment property in San Antonio, kickstarting her foray into the world of real estate partnerships. But her aspiration didn't stop there. In 2015, facing the same financial roadblocks, she partnered with her sister, living in New York City, to purchase a fixer-upper for $280,000. That creative solution involved Modares contributing the cash for the down payment while her sister secured the mortgage. It was an arrangement that allowed Modares to enter the housing market and set the foundation for her future endeavors in real estate.

By pooling resources, they transformed that fixer-upper into a valuable asset, now worth $600,000. It was an experience that ignited a passion in Modares for innovative homeownership strategies.

It wasn't long before she crossed paths with Steph Douglass.

Sharing a common vision, the duo, at 25 and 27, respectively, saw an opportunity to redefine the traditional pathways to property ownership. They recognized the potential in "house hacking" and forming real estate partnerships as viable solutions for younger generations facing housing market barriers. Their enthusiasm led to the birth of Open House Austin, a real estate brokerage that Modares and Douglass founded that specializes in educating and assisting potential buyers in navigating the details of co-ownership.

Modares and Douglass embarked on multiple co-ownership ventures, investing in four properties and guiding clients through similar processes. Their brokerage became a hub for fostering innovative real estate solutions, empowering clients with knowledge and strategies to make informed decisions in a challenging market.

The success of their ventures points to the feasibility and benefits of non-romantic co-ownership, a trend that is increasingly gaining traction among Americans. According to a JW Surety Bonds survey, nearly 15 percent of Americans have co-purchased a home with non-romantic partners, with the younger Gen-Z set being the most willing.

While Gen Z shows the greatest willingness, with 70 percent open to co-buying with a friend, the interest spans across all age groups, which suggests an underlying economic pragmatism driving the trend. In line with Modares' approach, 67 percent of those surveyed view cost-sharing as the primary advantage, reflecting the economic pressures many face in the current real estate market. Additionally, 56 percent believe co-buying enables them to afford a better home, further punctuating the role of collaborative investments in enhancing purchasing power.

Though, there are always risks involved with co-purchasing a home, and any party interested in doing so should protect themselves, says Hannah Workman, part of the creative team at JW Surety Bonds. "Before entering into a co-buying partnership, a clear legal agreement should be put in place that spells out exactly what happens if someone stops contributing to their side of the deal. This agreement should also include how mortgage payments, property taxes, insurance, and maintenance costs will be split and what happens if people want to exit the partnership," Workman told Newsweek.

Modares had that covered. Building on the success of their initial investments, Modares and her partners established clear financial and legal frameworks to manage their co-ownership arrangements, which included pooling varying amounts for down payments and sharing responsibilities for mortgage payments, taxes and maintenance. Modares, often taking on the role of a silent investor, contributed differently in each venture, with the division of equity reflecting each partner's financial input and responsibilities.

"There are lots of ways to structure a partnership," Modares told Newsweek. "We teach people how to do this at our company."

To safeguard their investments and relationships, Modares and her co-buyers relied on formal agreements and legal structures. They often utilized operating agreements and incorporated their properties into limited liability companies (LLCs) to outline each partner's obligations and to protect all involved in case of disagreements or financial issues. The agreements were designed to be flexible, allowing for adjustments as circumstances changed, such as when a partner wished to exit the investment.

One such scenario unfolded when a friend and co-investor in a retreat house wanted to sell her share. The partnership navigated that challenge by agreeing on a buyout plan, which included a lump sum payment, coupled with monthly payments until the investor was paid off.

"We tell our clients that when you are deciding to partner with someone, you need to make sure this is someone you can have hard conversations with, that they have similar values to you and that they are good communicators," the entrepreneur told Newsweek. "So if things don't work out (that's life!) then it won't end in complete disaster."

The inherent risks and potential downsides shouldn't overshadow the upside, specifically the opportunity to solidify your credit. Co-buying not only opens doors to homeownership for those who might otherwise be priced out of the market but also offers a unique opportunity for building equity and creditworthiness. "With the mortgage being a shared responsibility, if it is consistently paid on time, that helps build a positive payment history, which is a crucial factor in credit scoring," Workman said to Newsweek. "Putting money together to purchase a home makes it cheaper for all involved, which allows them to have more room for future investments. And as the owners make payments, this helps build equity in the property."

The benefits don't stop there. Beyond the financial advantages, Modares discovered that co-buying can enhance personal relationships and community connections. "It has been great so far! This is the fifth time I am doing this," she shared with Newsweek. More than just financial benefits, her experience suggests the potential for a surprising depth of community and connection.

As the landscape of homeownership evolves, the rise in non-romantic co-ownership signals a shift in societal attitudes towards property investment and communal living. While challenges and risks exist, the potential for financial gain, improved creditworthiness and stronger community bonds makes it an attractive option for many. The real estate market is responding, with more tailored services and solutions like Open House Austin emerging to cater to the growing segment.

As the trend continues to gain momentum, it could significantly influence the future dynamics of home-buying, potentially leading to more inclusive and flexible ownership models.