I think everyone would agree that it is very expensive to buy Bay Area real estate, especially right now. You may be thinking that you will never be able to buy a home due to the current prices. But you may also be thinking that if you pitch in some money with your relatives, you would be able to get in on a piece of the action. Co-ownership with someone else, particularly family members, can be a way to own real estate, but you need to be aware of the issues. You could be buying yourself a nightmare.
Have a Written Agreement Regarding Your Relationship.
A majority of co-owners who go in together to purchase a property do so without a well thought out agreement that defines the ownership relationship. This is especially true if the parties involved are family members. Everyone’s expectations are clear when the property closes escrow. But years down the road, memories fade and situations change. This can result in disputes about the property and lead to costly legal action to force the sale of the property. The owners end up losing, and the legal and real estate professionals end up receiving most of the equity, all because you and the other owners couldn’t get along. Ouch!
A majority of co-ownership problems can be avoided by spelling out the terms of the relationship in a written, signed agreement. For example, if a particular co-owner will be living at the property and the other co-owners will not, you should address the issue of how much rent the co-owner who lives there will be paying. You should also address the issue of who will pay for the expenses of keeping up the property. Will all the co-owners pay their proportionate share of all expenses on the property based on their ownership interest? Will the co-owner who lives on the property pay more in expenses based on living at the property?
Finally, your agreement should spell out what happens in the event a co-owner wants out of the relationship. Do the other co-owners get first opportunity to buy the other co-owner out? What is the procedure of valuing a co-owner’s share of the property to determine the purchase price? What happens if a co-owner goes through one of the 3 Ds of life: death, disability, or divorce? Many co-owners do a great job of getting along with each other, but what about a spouse or other individual who might pop up in the relationship? Well, that might not go so well.
These conversations are tough, but if you build some contingencies about what will happen in various circumstances into your written agreement, you can save yourself a lot of headache.
