The great thing about co-ownership in real estate is your group’s ability to COMBINE-LEVERAGE-SPLIT. Rather than shouldering burdens on your own, the group comes together as a collective and community to share the benefits and burdens of home ownership together.
Before moving on, you should have
Created your group purchasing strategy
Know the types of lenders you have available
Assessed your financial profile of yourself and your group
Finally, in summary of the McGill group example, it will be handy to assess your own group with the following key questions before moving on.
Key Questions
The situation of the McGill group raises many questions that will be questions facing your purchasing group as well.
How to establish equity?
The working premise for the McGill group is that every adult is assigned 25% equity.
Does equity translate to decision-making power?
The McGill group hoped to find a home that could be divided into 3 units. Because these would become 3 households with potentially independent wishes, they decided each household would get one vote when it came to making decisions. If they had designated decision-making power to reflect equity, then Tom and Lara would have gotten 2 votes while Serena and Kativa each got one. The group preferred to manage their cooperative home with 3 votes: they did not want to create a culture that was the “family” vs. “singles,” and an odd number of votes made it easier to make decisions and avoid impasses.
What happens when members of a purchasing group cannot make contributions that reflect their equity?
Review the table for the McGill group. It shows that:
Only Serena had the savings to make her part of the down payment plus closing costs.
However, going forward, Serena will not be able to contribute 25% of the mortgage on a monthly basis, due to her income.
In this case, Serena had capital from an insurance payment and loaned the group $360,000 towards the down payment. In return, the other members of the group will pay for Serena’s percentage of the mortgage payment. Serena will be ‘mortgage’ free for at least 10 years, by which time she may have earned more money, saved, or the McGill group will have changed and moved on.
This scenario also works if only one partner is bringing equity to a purchasing group from the sale of a home. It works in a caring, trusting and (we recommend) legally binding circumstance.
Get ready for Step 3: Creating Your Group Agreement (Coming Soon)
How Do You Build Your Financial Model?
Click on the sections below to learn more.
What are all the Steps to Becoming a Co-owner?
Click on the links below for all the blog articles related to each step.
“Each member of the group needs to be completely transparent – not only about their assets and income, but also about their liabilities. Personal consumer debt factors into the size of mortgage available.”
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