If you have been thinking of buying real estate, either as your place of residence or as an investor, or both, you may be worried that in this rising interest rate environment you may miss the boat if you are not extremely financially well off. Banks have raised interest rates substantially and we all know more rate hikes are coming. The next few years will almost certainly be difficult for new property owners to get their first mortgage.
One solution may be co-ownership. This is when two or more parties purchase a property together. There is of course a lot to think about before buying real estate with someone else, but it can be a great way to get your first property.
Benefits of Co-Ownership
What makes co-ownership so beneficial is that it allows a buyer to purchase twice as much property, or more, than they could by themselves. Two incomes will be able to qualify for twice the mortgage loan amount than either one could on their own, and often it is the difference between being able to afford anything and having to rent for another year, and with the very real possibility of a recession looming, quite possibly for another two or more years.
In addition to the mortgage being split between the two parties, all of the other expenses are split as well, such as property taxes, insurance and utilities. Both parties are able to build equity and escape paying rent in a much more cash friendly way.
In this rising interest rate environment, period of economic uncertainty and rising rents, purchasing a brownstone to lock in your expenses could be a wise choice.
How Co-Ownership Works
Co-Ownership can be structured in a variety of different ways, but the easiest and most common way is called Tenancy in Common. All this means is that each party’s name is on the title, and it has a flexible ownership structure. The brownstone does not have to be split exactly in half, one party can own a larger share than the other.
Co-Ownership can be used to buy a single family brownstone, and this may make sense for some buyers. The two parties could potentially live as roommates for the time being, and then when the time is right, each move out and use the property as an income generating rental property.
It also makes sense for multifamily brownstones. The two could each live in a unit to cut costs, and if there are more than two units still be able to collect some rents. Again, it is flexible and can be structured numerous ways depending on the number of units and if the two parties wish to cohabitate.
Is Co-Ownership Right For You?
Of course there is a lot to think about before purchasing property with someone. Make sure the details and expectations are clearly discussed and agreed upon beforehand. It’s a good idea to get everything written out in contract form so there are no surprises later as well. But if you are on the fence about whether or not you can afford to purchase your first brownstone right now, this may be the right solution for you.
Schedule a call with me here if you have any interest in obtaining a complimentary valuation for your home or buyer consultation.
Authored by: Stanley Montfort
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