People who are married normally buy a home as Joint Tenants. That means that if one dies the other automatically inherits and owns the home. You don't have to be married to buy as Joint Tenants, but since it involves inheritance rights that is usually the practice. People who decide to buy a home together who are not related often make an investment as Joint Tenants. When that occurs usually, they each put their share of the down payment into the investment and they take out a mortgage in both names. Both have to qualify for the mortgage; but since there are usually two incomes, it becomes easier to qualify for the loan.
If one of the investor joint tenants were to die, their share of the property could be left to his or her heirs. In other words, the share does not automatically go to the other partner unless it is so specified in a will or estate plan. This could mean that the investor would either have to buy out who ever inherits the share, or they could be forced to sell the home to pay off the new half owner. This can get pretty complicated.
If buying a home with someone else as an investment as joint tenants, there should be a side agreement to deal with the what if's to prevent misunderstanding. What happens if one of the parties wants out of the investment. Maybe there should be a specific term for the investment; perhaps five or 10 years unless both parties agree to keep the home longer. Though two unrelated people may choose to buy a home together as an investment, it should be seen as not only a home both may be living in; but also a real estate investment. And, or if the home was bought to be a rental from the start, it is a much easier discussion. In that event, the questions that come up relate to the cost to carrying the home and necessary repairs and improvements should the monthly rent not cover all expenses.
If purchasing a home as a rental investment, it would be best to set up a joint checking account to be used solely for money in and money out related to funding the property. Putting three months carrying expenses into that account is a good idea. One of the partners will probably end up managing the property and keeping the books, which would be necessary for year end tax reporting.
Either way, investing in real estate is a long term investment. No one should assume that they are going to buy a home with the intention of flipping it quickly. While that works in some markets, the odds are pretty good that you should look at the investment in terms of 10 years or longer to reap the tax advantages and deductions along with appreciation that could make the investment worthwhile. At Paragon Home Resources, we work with people to sell and buy homes all over the country. We can help with this important investment decision to provide advice in choosing a home that will offer the best return on investment.
