Realty Reaction

Homeownership has long been regarded as one of the key elements of the “American dream.” America has one of the highest proportions of homeownership in the world, with more than six out of every ten families living in owner-occupied housing.

The reasons for America’s love affair with homeownership are many. Some are financial. Our tax code continues to subsidize heavily the ownership of homes, making it more attractive than renting for most people. Homeownership is also America’s favorite forced-savings and investment plan, with an increasing share of the monthly mortgage payment going into the building of equity for future uses-another home, college expenses, retirement, etc. A home is, truly, the only investment you can live in, and over the past 40 years, it has been a generally well-performing investment, relative to alternative uses of money.

But much of the motivation behind homeownership is psychological. This country was founded on principles of individual destiny, personal control over one’s life and surroundings, and freedom of individual expression. A home of one’s own helps fulfill all of those promises, giving the owner freedom from rent hikes and the whim of the landlord, and the freedom to live life as he or she wishes. A home can provide a sense of security and pride. A home gives a feeling of stability and commitment, not to mention autonomy and privacy. It is often the first step in an owner’s putting down roots in a community.

But like most freedoms, the benefits of homeownership also carry heavy responsibilities-financial obligations and duties of maintenance, recordkeeping, and planning.

It’s no wonder that psychologists rank buying a home high on the list of stress-producing events. Not only is it the biggest purchase most people make in a lifetime, but it also forces a wholesale examination of goals, commitments and lifestyle. It’s an emotional as well as a financial investment.

People buy homes for lots of different reasons. Before you go into the market for a home, examine your motives, clarify your wants and needs, and focus your investigation.

With so much at stake, don’t rush into the market without thoughtful preparation. If you join the ranks of buyers charging about searching for answers without knowing the right questions, you may, by luck, end up with a house you can live with. Then again, you may spend weeks, even months, looking at houses only to end up feeling thwarted and confused.

Before you take the plunge, address questions like these:

What does being a homeowner mean to you? To your spouse?

What do you really want in a home, and from a home? If you have children or plan to some day, how will your choice of home affect them ? Your home determines where children will go to school and what facilities will be nearby for recreation, shopping and worship. What about proximity and convenience for friends? Its location or design can make it a favorite gathering place for your friends or extended family.

How will becoming a homeowner change you and the way you live? Who hasn’t heard stories about the totally unhandy new buyer who ends up renovating his or her home from top to bottom; the successful business that had its beginning in a spare room or basement; or the irrepressible free spirit who is transformed into a model of financial responsibility by homeownership?

The vast majority of houses are either solely owned by individuals or jointly owned by married couples.

But with a surge of unorthodox living arrangements in the 1970s came a new variety of ownership arrangements among unrelated individuals sharing the same principal residence or vacation home. Single people living as couples or just groups of friends wanted the advantages of homeownership, too.

Many lenders are still cool to such arrangements, but some are not.

There are proper ways to go about buying property jointly with relatives or unrelated friends, the two most common being tenancy in common and partnership. A good real estate attorney can explain them to you.

Owning in a group can create problems. When a tenancy-incommon ownership share changes hands, the lender may declare the loan due. The only recourse, if you don’t want to sell the property, is to refinance.

Setting up a general partnership to own the place can head off many of those problems by anticipating and dealing with them in the partnership agreement. Use your lawyer to draw up the agreement.

Make sure the partnership agreement addresses the following points:

• How ownership will be divided, which in tum determines who pays how much of the down payment, monthly payment, maintenance and repairs. The contract should also describe how any profits or losses from rent or sale of the place will be divided and how tax benefits will be distributed.
• How use of the house’s space is to be divided.
• What constitutes a deciding vote and under what circumstances such a vote is considered necessary.
• Which owner will act as managing partner and thus be responsible for signing checks and paying routine expenses.
• How much advance notice a withdrawing partner must give and how the buyout price will be set.

A partnership may also protect the existing mortgage when a new owner enters the picture if the lender agrees that it is an interest in the partnership-not an interest in the property-that is being transferred.

Ideally, a general partnership should try to find a lender who is willing to limit each partner’s liability on the loan to his or her respective percentage of ownership, even though such agreements are unusual. Otherwise, each partner is responsible for 100% of the loan, so a lender could single out any partner to sue for the money if there’s a default, instead of going through complicated foreclosure proceedings. Regardless of this protection, you’ll want to be confident that each member of the buying group is financially responsible, creditworthy and stable in his or her career.

The legal and financial techniques associated with ownership by unrelated individuals are just the beginning of your consideration of this issue.

Just as important, or even more so, is compatibility of lifestyle and the prospects of a durable friendship among all involved. As for investment value, keep in mind that partnership interests in a commonly owned house are not highly liquid. To get full value for anyone’s share, the group may have to sell the whole house.

There are a lot of obstacles to overcome in such an arrangement, but with careful planning and thoughtfulness among friends, it can work out well both socially and financially.