by Craig Venezia

Buying a first or second home with friends or family can make it more affordable.

What you learned in kindergarten about sharing could help in your quest for a home. But this time around, rather than sharing your Lincoln Logs, you'll be sharing your home, with a cobuyer.

Once the domain of married or committed couples, more and more homebuyers are discovering the advantages of teaming up with a relative, friend, or someone else to buy a house. If done right, the shared-purchase approach can get you a home you might not otherwise have been able to afford.

On the other hand, if you don't fully think through the arrangement and set it up correctly, it could lead to financial and legal chaos, not to mention a strained or broken relationship.

Decide How You'll Hold Title

Any time you buy a house, you receive what's called "title," evidenced by a piece of paper called a "deed," which explains how the grantees are sharing the title.

It's important to choose a manner of title-sharing that reflects your true wishes about how you'll share ownership. Your main options for sharing title with a non-spouse include:

• as tenants in common (TIC), and
• as joint tenants with right of survivorship (JTWROS).

(Married couples may also take title as "tenants by the entirety" or as "community property.")

Differences Between TIC and JTWROS Ownership

There are some important differences between a tenancy in common and joint tenancy, particularly when it comes time to sell or dispose of one person's ownership interest.

With a TIC, you and your cobuyer are allowed to own unequal interests (also called shares) in the property. Also, if one co-owner dies, that co-owner's share is transferred to his or her beneficiaries. Tenancy in common (TIC) is by far the most common way for unrelated cobuyers to take title.

With a JTWROS, by contrast, you and your cobuyer have (in almost all U.S. states) no choice but to own equal interests in the property, 50/50. If you buy a home with two others, you each own a one-third interest, and so forth. Upon the death of one joint tenant, the remaining owners gain the deceased owner's interest in the property. This happens automatically, with no need for a court or probate proceeding. In fact, even if the deceased owner wrote a will specifying that the property was to pass to some other person, that request would not usually be allowed.

Similarities Between TIC and JTWROS Ownership

Both tenancy in common and joint tenancy give each of you an "undivided interest" in the property, meaning you can both use and enjoy the entire property. If one of you wanted to sell, that person couldn't simply divide the property in half and sell it, but would instead have to sell his or her tenancy or interest in the property. The buyer would gain the same rights as the seller had. And if you're buying a second home or investment property, you'd both be entitled to rental income from the entire property in proportion to your ownership share.

Create a Co-Ownership Agreement

Talk is cheap, and what's worse, easily forgotten later. That's why you need to draft and sign a co-ownership agreement, to help head off confusion or misinterpretation down the road.

The most challenging part of drafting a co-ownership agreement is anticipating issues while everything looks rosy. Most people enter into a partnership with the friendliest of intentions, thinking they can work out any unforeseen questions later. But with big dollars and possibly your leisure or retirement time at stake, fundamental disagreements can arise and can be tough to work out.

Co-ownership agreements can range from short to lengthy. The agreement should at least address the issues discussed below.

Who Owns What Percentage?

Clarifying what percentage each of you will own is especially important in case one of you later dies or decides to sell your interest.

This decision is easy if you take title as joint tenants with right of survivorship (JTWROS). You'd normally divide your interest into equal parts, such as 50/50 if there are two of you.

If you take title as tenants in common (TIC), however, you don't need to divide your interests 50/50, nor even on the basis of how much money each of you puts in. For example, the two of you might decide that one will receive a greater percentage based on having agreed to manage upkeep on the property. Another possibility is that one co-owner contributes less for the down payment.

Who Will Pay Ongoing Expenses?

Your ongoing homeownership expenses may include mortgage payments, property taxes, insurance premiums, utilities, and other costs of maintaining and operating your home. You can specify how you'll allocate these expenses in your co-ownership agreement. You can simply allocate costs at the same percentage as ownership or use the down payment contribution of each co-owner as the foundation. Or, if you and your co-owner plan to buy a second home and use it personally (as opposed to renting it out), then you could allocate expenses based on the amount of time each co-owner spends there.