Buying a home with a friend? Toronto real estate broker shares what you need to know

Online, people are talking about the increasingly popular practice of buying a home or investment property with a friend or family member. This includes some lawyers who have taken to social media to warn people about buying a home with a friend without having the proper legal documentation in place. 

“Please do not buy an investment property with a friend (or romantic partner) without a written contract. Even if you are such good friends/lovers you think everything will be fine, you’re not and it won’t,” wrote American-based lawyer Michelle Kay Camp.

“This should have said *any* real property. Eg friends/romantic partners buying a house with no written agreement re expenses, profits/losses, what happens if one wants to sell but other doesn’t, etc. I’d say don’t do it all, but if you’re going to, get everything in writing,” Camp said in another post.

“This is a very important point. People don’t plan for things to fall apart. There needs to be a written agreement BEFORE you purchase,” responded one real estate attorney on X.

“I used to do books for small & medium-sized businesses. Michelle is so very correct; no matter how good your relationship is now (& BECAUSE it’s so wonderful now) you need to set up some parameters to protect yourself AND this person with whom you work so well,” another person said.

And with housing affordability always being a hot topic in the city, Now Toronto spoke with GTA real estate broker Bethany King about some best practices when it comes to buying a home with friends or family. 

“The reality is that it is extremely difficult to purchase a house in the GTA on a single income, based on our average median income,” King explained, adding that as a result, she is seeing many people partner up in order to buy their first home. 

“It is not uncommon for first-time buyers to go into a partnership, whether it’s with a spouse, or a platonic friendship, or even with their parents in order to qualify for a mortgage substantial enough to purchase something within southern Ontario/the GTA,” King explained. 

King shared that in her professional opinion, this is almost the only way to get your foot in the door in the Greater Toronto Area. She shared that people are having to move far outside of the city in order to afford a home. 

“We did a transaction at $350,000 and that client had to relocate well outside of the city to Welland. So, in order to purchase something on our average median income, you’re looking at one-and-a-half hours away from the centre of Toronto.”

BEST PRACTICES FOR PARTNERSHIP IN REAL ESTATE

So, if you’re browsing the market looking to buy your first home, teaming up with a friend, family member, or even partner may seem like a good option for you. However, King shared that there are some best practices that you should remember. 

“The best practices of going into partnership on an investment or real estate purchase would be to have something set in stone, have something in writing that dictates this co-ownership,” King explained. 

“I’m not a lawyer, but the most common thing used is something called a Cohabitation Agreement, and it essentially outlines the details of the partnership and the equity.”

She explained that it means that nothing regarding ownership of the property can be left to interpretation in the future.

“It’s nice to outline who is owed what and it makes both parties feel comfortable, and speaking with your lawyer on this, they will be able to go into more detail about the true value of this [contract].”

She explained that from a mortgage standpoint, there are options that allow parents to support their children in unique ways when they are buying their own home. 

“There are a lot of mortgage products out there that will allow a parent to go on title for only one per cent equity, in order to help their son or daughter qualify for a reasonable purchase price.”

“I think it’s important for parents to understand that when you’re going on title with your son, with your daughter, it’s not necessarily because they’re a bad candidate, or because they have poor credit. It’s because our average home price does not equate to our average median salary.”

“The first-time buyers who are able to purchase are the ones that do have some support from family members and parents.”

King explained that this is something you might do with a friend, but also in a romantic relationship. 

“I think all first-time buyers should consult with their lawyer about this prior to making the biggest investment of your lives.”

King shared that she always recommends young people also make sure to take time to speak with a mortgage professional because there are many different mortgage programs that the general public doesn’t know about. This includes different programs that meet the needs of certain groups. For instance, the self-employed.

“Traditionally as a self-employed person it was very common that you needed 20 per cent [of the purchase price] down,” she explained. 

“But recently more and more lenders are offering programs where self-employed individuals can purchase with less than 20 per cent down,” King explained. 

“I’m finding that more and more first buyers are not just working one job during the day, they may have a side hustle, they may be running their own business on the side, so when you work with an experienced lender they can really capitalize on both incomes.”

She also has tips for the parents looking to buy their first home. 

“It’s important if you’re a mother to work with a lender or mortgage agent or broker who knows how to incorporate our child tax benefit as qualified income when you’re doing your pre-approval.”