By Mike Bodeen · 24 January 2022
Two weeks ago, in response to our continuing rabid seller’s market, we suggested buyers look towards new construction in buying a home, which has many inherent benefits. Last week, we reported how the Phoenix Metro communities, and in particular, the Northeast Valley has become unaffordable – out of reach for most. And the rest of the Valley is following that unaffordable trend also. The chart below is most descriptive of our price-rise dilemma:
This week, we’d like to throw out another buyer strategy, we’ll call shared ownership, not to be confused with time sharing.
The shared ownership concept is not new. In our current market however, it might make a lot of sense for some, (especially newbie buyers) now more than ever.
Shared ownership is two or more buyers going in together to buy a home. If two buyers were to buy a $500,000 home together, the cost to acquire and maintain would be the equivalent of a $250,000 home. This could be singles going in together. This could be friends, siblings, parents and child, investor and individual(s). The benefits are mostly financial affordability, but that’s huge when the alternative is to remain a renter with annual and significant rent price increases.
“…shared ownership, not to be confused with time sharing, is not new. But in our current market, might make a lot of sense for some, (especially newbie buyers) now more than ever.”
First of all, who can this work for? With a good legally drafted document, it could work for almost anyone. The keywords are good, legally drafted. Think of this as a partnership arrangement. A real estate attorney would be an imperative to draw this.
Some things to consider (there are many) include:
1) Initial cash investment
2) Monthly costs to maintain (I.e., who pays for what?)
3) Length of ownership (agree to sell when: 5 years? 10 years?)
4) 100% buy-out options
5) First right to buy
6) Tax benefits and how they’re divided
7) Sharing profit (50/50, percentage according to contribution)
A first thought is family. Parents/grandparents, aunts, uncles, etc., and the prospective family buyer. Even (perhaps especially) family members should have a well drafted legal document.
This could work for singles. It could work in a divorce situation. For example, instead of selling the home, have a son or daughter buy half the home to live in or enable one of the spouses to continue living there. Singles who know each other well, could also greatly benefit from this.
The goal of all this is to provide affordable and consistent ownership in an era of disappearing home affordability.