Structure of a Co-Ownership Housing Agreement

Your goal is to own a home, but you must take steps to ensure you can afford it. One way to make this happen is to purchase a house with a friend using a co-ownership agreement. At the same time, I do not want to ruin relationships, but I need to explore tips to reduce problems in co-ownership housing:

Here are tips to minimize issues in co-ownership housing: Draft a contract that details co-ownership arrangements, including procedures if an owner passes away; ownership information for personal property; methods for setting the sale price; privacy rules for visitors’ stays and their permitted duration; and terms for ending the agreement. Also, make sure all parties understand how to handle financial matters, including who is responsible for paying property expenses and how these payments will be managed.

There are several ways to own a house in a co-ownership arrangement.

Tenants in common involve two buyers, like Richard and Betty, each owning 50%. If Richard dies and leaves everything to his brother, Betty still owns her 50%, but it now shares ownership with Richard’s brother. Tenants in common allow owners to sell or transfer their share freely without needing others’ approval. This structure offers advantages, such as assigning different ownership percentages—like Betty with 34% and Richard with 66%—but also has disadvantages, including the risk of sharing a home with a stranger and potential liabilities if one owner faces issues.

Joint tenants with right of survivorship is often chosen by engaged couples. All owners have equal rights, and upon one owner’s death, the other inherits the property entirely. This setup is typically for married couples. If a partner dies, the surviving owner owns the home outright. Divorce usually shifts the arrangement to tenants in common.

Forming an LLC (limited liability company), creates a business entity that shields owners’ personal assets from business debts. However, setting up an LLC involves filing fees, and securing a mortgage might be more complicated.

A trust involves transferring property into a separate legal entity instead of registering it in individual names. The trust owns the property, and you act as a trustee managing it. You choose beneficiaries to inherit the property upon your death. After you pass away, the trust continues owning the property, with beneficiaries acting as trustees.

Finally, you can limit your liability by buying a home with a co-buyer and forming an LLC, a separate entity that protects your personal assets. Alternatively, you can establish a single-member LLC as an individual. Tax consequences also apply. If risk reduction is your goal, you might take out a mortgage in your name and then use a “quitclaim deed” to transfer ownership to an LLC, effectively moving the property from you to the LLC. Generally, LLCs are used when co-buyers acquire property as an investment.