Purchasing real estate is a significant financial decision, and for many, the idea of buying property with a friend can be an appealing way to enter the Ontario housing market. While there are distinct advantages to this approach, there are also potential pitfalls to be aware of. Here, we explore the pros and cons of buying Ontario real estate with a friend.
Advantages
1. Shared Financial Burden
One of the most significant benefits of buying property with a friend is the shared financial responsibility. By pooling resources, you can afford a larger down payment, reduce monthly mortgage payments, and cover additional expenses such as property taxes, maintenance, and utilities more easily.
2. Increased Purchasing Power
Combining your finances with a friend can increase your purchasing power, allowing you to buy a more desirable property or one in a better location than you might be able to afford on your own. This can be particularly beneficial in competitive markets like Toronto or Ottawa, where property prices are high.
3. Shared Responsibilities
Owning a property comes with various responsibilities, from maintenance and repairs to managing household tasks. Sharing these duties with a friend can make homeownership less overwhelming and more manageable, ensuring that no one person is solely burdened.
4. Emotional Support
Buying a home can be a stressful process. Having a trusted friend to navigate the ups and downs can provide emotional support and make the experience more enjoyable. You can rely on each other for advice, encouragement, and assistance in making important decisions.
5. Diversified Investment
Real estate is a significant investment, and sharing this investment with a friend can help diversify your financial risk. In the event of market fluctuations, the financial impact on each individual is lessened compared to going it alone.
Disadvantages
1. Legal and Financial Complications
While sharing ownership can have financial benefits, it also introduces legal and financial complexities. It's crucial to have a clear, legally binding agreement outlining each party's rights and responsibilities, how expenses will be shared, and the process for selling the property or buying out the other party.
2. Potential for Conflict
Living with a friend and sharing a significant financial commitment can strain even the strongest relationships. Differences in lifestyle, financial priorities, and personal habits can lead to disagreements. It's important to have open and honest communication to address any issues that arise.
3. Exit Strategy Complications
Deciding to sell the property or one party wanting to move out can be complicated. An exit strategy should be established from the beginning, detailing how such situations will be handled to avoid disputes and ensure a smooth transition.
4. Credit Risk
Your friend's financial situation directly impacts your investment. If your friend encounters financial difficulties and cannot meet their share of the mortgage payments, it could affect your credit score and put the property at risk of foreclosure.
5. Limitations on Future Purchases
Co-owning a property may limit your ability to purchase additional real estate in the future. Lenders consider existing mortgage obligations when determining your eligibility for new loans, which could impact your borrowing capacity.
Conclusion
Buying Ontario real estate with a friend can be a practical and financially advantageous way to enter the housing market, especially given the high property prices in many areas. However, it is essential to approach this decision with careful planning and clear communication. By addressing potential challenges proactively and establishing a solid legal foundation, you can maximize the benefits and minimize the risks of co-ownership.
Whether you're considering this option as a way to afford your dream home or as an investment strategy, weighing the pros and cons will help you make an informed decision that best suits your financial goals and personal circumstances.
Ontario One Realty Ltd has office locations in Muskoka, Simcoe & the GTA (Greater Toronto Area) with more coming soon. We service Dufferin, Durham, Kawartha Lakes, Muskoka, Simcoe, Toronto and more.
Ray Dickson
Broker of Record / President