Overview

Like us, you likely prefer your co-buying journey to be smooth, calm, and stress-free. That’s not how things typically go in the wild. Most co-buyers fumble through the process. It’s not their fault—there’s a lot going on. Outside of starting a business, which is actually a great analogy, there are few activities as dynamic. Co-buying has so many moving parts.

Understandably, co-buyers often fail to assess risk as they try to figure everything out. The problem is that co-buying is a significant, leveraged investment. Any seasoned investor will tell you that risk management is a cardinal rule of investing. Remove risk, improve returns. It’s that simple.

Let’s look at how things usually go for co-buyers in real life.

Example: many co-buyers wait until it's too late

Here’s an example of one type of message we receive a lot.

We can break this email down by where these friends had problems.‍

Phase 1: Plan & build consensus

• They aren’t clear on participation, which is problematic because they’re now negotiating a home, and a third friend wants to join in and likely live at the property full-time.
• They aren’t aligned on expectations and goals as a group. It sounds like the third friend survives on a trust fund. It also seems that the gift of funds from that friend towards a down payment came with strings attached, but these weren’t divulged upfront.

Phase 2: Get a joint mortgage

• They are preapproved for a mortgage as a group of 2, and this preapproval looks to depend on an external gift of funds.
• They aren’t sure who will be participating on the mortgage going forward. Clearly, they aren’t aware that adding someone who is unemployed with no credit history to a residential mortgage is not feasible.
• We can extrapolate that their Loan Officer isn’t doing a great job advising the group. If they were, the group wouldn’t be asking us for help.

Phase 3: Navigate the search, negotiate, transact

• Two of the three friends got preapproved for a mortgage before searching for a home, but they’re now in negotiations and aren’t ready. This approach fails.
• The RE agent doesn’t “seem to know how to co-buy”—their words, not ours.
• The co-buyers are stressed: “things are moving fast,” and they “can’t seem to get any help!”

Phase 4: Structure co-ownership

• They don’t know who will be on Title. This is a hard prerequisite to close on a home. As a side note, they have a high probability of creating an asset-liability mismatch (more on that later).
• The lawyer they’ve hired doesn’t “seem to know how to co-buy.” Their words, not ours.
• They’re looking at an LLC. It is generally impossible to get a residential mortgage for a primary residence if you go this route.

Phase 5: Exit strategy

• It’s impossible to plan an exit strategy before participation is clear: who is involved and in what capacity.
• Planning an exit strategy is essential for all co-buy groups. Based on context clues, this group will need a strong exit strategy. If they complete a purchase together, the signs suggest the co-ownership arrangement may only last for a while.

Deal team

• The group has enlisted a mortgage lender, RE agent, and lawyer. They’re the wrong people for the job.
• Context clues make it clear that the professionals on the deal team are not communicating.
• These professionals are not only failing to provide information where they should, but they are also providing incorrect information where they shouldn’t.

So what?

This co-buyer group moved forward too soon. At this point, it will be hard for the group to get the support they need. They face a complex problem set and a tight timeline. There are signs of deal heat, uncertainty, and stress. As we know, stress impairs human decision-making and alters our risk perception.

Objectively, this group’s course of action has created considerable execution risk. If they get an offer accepted on any home, the likelihood of avoidable costs materializing appears high.

Validated Learning: smart co-buyers are risk aware

To navigate the risks of co-buying successfully, you need a solid plan and a disciplined approach. Skipping steps or cutting corners can lead to complications that don't just affect you in the short term; they can come back to haunt you years later.

While the universe of risks is vast, the reality is that most co-buyers encounter a specific set of challenges. The key to managing these risks is to become "risk aware." This means shifting from a mindset of ignoring risks to actively avoiding actions that could lead to adverse outcomes.

Remember, taking the time to manage risks now can save you a world of trouble later. It's not just about dodging pitfalls; it's about making more intelligent decisions that benefit you and your co-owners in the long run.