I’ve seen this trend a few times in the last few years.

Friends buying homes with friends – or Co-Buying homes.

This can be a great way to get into real estate, own instead of rent and start “adulting” like the rest of us.

Co-buying can be a great way to get your foot in the door of ownership – but it’s not without risks.

It can be a great feeling to get out of the apartment scene and into a “real home”. But – you have to think about what happens down the road.

Situations can change. Confirmed life-long bachelors can suddenly get engaged and even married! George Clooney anyone?

For instance -a tenant couple decided it was time to buy a home. They told me they were buying a home in DC. They were great tenants and I was sad to see them move.

It was about a year later that I learned that they had bought a home with a good friend. This couple thought everything was great until their friend decided it was time to get married, move out and start a family of his own. (Not exactly in that order, but that’s another life lesson.)

Yeah – his new fiance wasn’t too keen on living in a basement apartment in DC.

My old tenant, the couple, couldn’t afford to buy out their friend.

Before you think this has a horrible dramatic ending – all is good, and everyone is still friends today.

They all agreed to sell the house – but everyone was disappointed because the net proceeds were far short of anything meaningful. In other words, the principal amount owed on the home was still very high – even though they had paid on their home for over 3 years.

While the home had gone up in value – it was barely enough to cover the commissions and other costs of selling the home. At the end of the day everyone was able to move on but everyone involved was just – disappointed.

My old tenants, now adulting friends, got off lucky in my opinion.

If their grand co-buying experiment had taken place when the market went down, or even sideways – selling the home would not have been an option without some additional financial pain. Maybe even bringing money to the closing table in order to sell the property.

Yes – that can happen. Some people PAY to sell their home, just so they can move on. This was very common in the Great Recession just a few years ago.

In the DC area, we have had a rising market the better part of 10 years now. It’s easy to forget – sometimes the market can go down, or even sideways for a while.

Co-Buying can be a great way to get into a home, or even an investment property – as long as everyone understands the risks, and is willing to ride out the eventual market changes.

As a matter of fact, according to the National Association of Realtors – co-buying is up to 4% of total first time buyer purchases – twice the number just a year ago.

Co-buying homes. Yet another topic for us to talk about at our February WREIA meeting on Monday.

Staying on top of trends can help you understand and serve your market better than the next investor.

See you Monday at WREIA!

John Peterson

Founder, Washington Real Estate Investors Association