Should You Become a Co-Ho?
By Barbara Kiviat
Stuart Katz and Jeff Kovack met at Ohio State. They quickly hit it off. The pair joined the same fraternity, and after graduation, both moved to Baltimore, where they became roommates. Then a year ago in April, the 25-year-olds took the next step: they bought a house together.
But no, this isn't that story. This is the story of friends--just friends--who buy houses together because they are young and don't have a lot of money but smell opportunity in a soft real estate market and want to start building equity ASAP, even if it comes before the wife, kids and golden retriever. "On my own, I might have been able to buy a one-bedroom condo, but that would have been pushing it," says Kovack. Instead, he and Katz live in a 2,300-sq.-ft. (about 215 sq m) three-bedroom row house with stainless-steel appliances and a deck out back. They split the mortgage, the tax break, the cost of upkeep--and the pride of being homeowners a few years out of college.
Given real estate's penchant for shorthand (think condo, co-op, comps and COFI), we should add a term for friends who buy houses together. Let's call them communal homeowners. Co-hos.
For a Friends-reared generation that is remaining single longer, being housemates makes perfect sense not just financially but socially too. "What are you going to do--come home to an empty house every night?" asks James Cartlidge, who in 2004 co-founded Share to Buy, a British firm that helps co-hos get mortgages. Erik Carter, 29, a law student in San Diego, is considering buying a house (and a spectacularly large house at that) with four other people: his girlfriend, another couple and a fifth friend. "It's like a reversion to the old extended family," he says. "But now you choose your family."
Families, though, are built for mingled finances. Friendships, we're told, are not. "My parents were very nervous," says Tanja Gabrovsek, 35, a nurse who bought a three-bedroom row house in San Francisco with her friend and colleague Simin Marefat, 34. Signing a mortgage means you're on the hook financially; the bank doesn't care if you're not the one whose check is late. So what happens if someone loses a job? Or wants to move?
Contingencies like those are why Gabrovsek and Marefat have a 25-page agreement that spells out everything from how they pay for home repairs (fifty-fifty all the way) to what happens if one of them gets married (the husband has no claim on the house) or dies (the surviving owner has the right to buy the other half before it goes to next of kin). "People are friends, and they're honest people, but situations change," says Andy Sirkin, a real estate lawyer whose firm crafted the agreement. "You need to be ready."
Back in Baltimore, Katz and Kovack don't have a written agreement, but they do have a long history. When they moved to Baltimore, they even started out working for the same homebuilder. "You have to do this with a person you trust," says Katz. That was crucial when Katz lost his job and when Kovack decided to take one that paid less. Katz says, "I knew he wouldn't sacrifice paying the mortgage to do other things, and he had to trust that I had enough money saved." The pair also talked exit strategy early on. They agreed to hold on to the house for at least two years. After that, if one of them wants out, the house goes on the market.
But winging it doesn't always work. After Katz and Kovack bought their place in Baltimore, two of their buddies from Ohio State decided to get a house in Columbus. At first the match seemed perfect. Brian Testerman, 25, and Collin Nailor, 24, had known each other for six years, and both saw the house as an investment: they'd buy a fixer-upper, live in it during the renovation, then sell for a profit. The problem is, 11 months into home ownership, Nailor wants to move to Chicago, where his girlfriend now lives. Testerman thinks it's ridiculous to sell so soon; work hasn't even begun on the kitchen. "I'm stressed out," he says. "Going home is uncomfortable."
And that's not nearly as bad as it could be. Taking title to a house with another person means his or her assets are tangled up with yours. If your fellow co-ho can't keep up with the mortgage or runs into other financial trouble and creditors or a bankruptcy court descends, the house could be seized. If forced to sell, you'll get half the money, but farewell, home, sweet home.
Which is all the more reason to communicate early and often--throw those bank statements on the table, and let everyone see. "In a certain sense, it's like a prenuptial agreement," says Louise Merriam, a real estate agent at Coldwell Banker Hickok & Boardman in Burlington, Vt.
And yet in other ways, being a co-ho is very much not like being married. When Merriam took Mike Dash and Matt Sisto, two 24-year-olds, to look at a condo, it had a master bedroom and a second, smaller one. "We were, like, 'Who's going to get the master?'" says Dash. "We contemplated playing a round of golf for it." Or think about what happens every time Marefat or Gabrovsek wants to do some decorating. "We always ask, 'Is this O.K.? Is that O.K.?'" says Marefat. "If I were married, it would be much easier to say 'I like this. We're putting it in.'"
As house prices cool--and more young people stop assuming that buying is out of reach--there will probably be more co-hos. "Once I started talking about it, I had people saying, 'Maybe I could go in with you,'" says Catesby Holmes, 26, a travel editor in New York City who is shopping for an apartment with two friends. "I thought, This is going to be a 10-person house. I had to say 'Maybe you should find your own.'" Or, rather, find one with a friend.