How Can 3 People Buy A House Together (And Should They?)

Are you part of a three or more-person collective looking to buy a house or investment property together? 

If so, you must feel overwhelmed with the major decision and all the possible factors that come into play. 

Home-buying can be an exciting experience and different from any other large purchase you may have made before – it’s not just about finding the best house but also ensuring everyone feels comfortable and safe at home for years. 

In this blog post, we’ll show you how three people can buy a house together – and ensure each co-owner is happy with the outcome!

There are several ways that three co-owners can jointly buy a house, depending on their specific circumstances and goals. These options include Joint Tenancy, Tenancy In Common, and purchasing within a Trust or LLC.

I’ll discuss the pros and cons of each method so you can decide which option might be right for you! 

The Easiest Method – Joint Tenancy

A joint tenancy is the first method to buy a house with three co-owners.  In a joint tenancy, all co-buyers have equal property ownership and share the rights and responsibilities associated with co-ownership. If one co-owner dies, their share of the property automatically passes to the surviving owners. 

Some pros and cons of being joint tenants include the following:

Pros Of Joint Tenancy

  • Equal co-ownership: Joint tenants hold equal property ownership, meaning they have equal rights to use and enjoy the property.
  • Right of survivorship: If one co-owner dies, their share of the property automatically passes to the surviving co-owners rather than being subject to the probate process. This can be a convenient and efficient way to transfer ownership in the event of an owner’s death.
  • Simplicity: Joint tenancy is relatively simple to set up and maintain and does not require the creation of a separate legal entity to hold co-ownership.

Cons Of Joint Tenancy 

  • Limited flexibility: Joint tenants cannot be easily modified or terminated once established. If one co-owner wants to sell their share of the property or transfer it to someone else, they must get the consent of all other co-owners.
  • Lack of control: Joint tenants have equal control over the property, meaning that one co-owner cannot make decisions about the property without the consent of the others. This can lead to conflicts or disputes if there are differences in opinion about how to manage the property.
  • Risk of creditor claims: If one owner has creditors or is sued, their share of the property may be at risk. This can be particularly problematic if the other owners are not aware of the financial risks that one owner may be facing.

Using Tenancy In Common To Buy A House With 3 Or More Co-Owners

The next option to buy a house with three people (or more) is a Tenancy in common.  In a tenancy in common, each co-buyer holds a separate and distinct co-ownership interest in the property. 

This means that each owner has the right to sell or transfer their interest in the property without the consent of the other owners. Some pros and cons of tenancy in common include:

Pros Of Tenancy In Common

  • Flexibility: Tenancy in common allows each owner to transfer or sell their ownership interest in the property without the consent of the other owners. This can provide more flexibility than a joint tenancy, which requires the consent of all owners to transfer or sell an interest in the property.
  • Control: Each owner in a tenancy in common has the right to use and enjoy their co-ownership interest in the property, regardless of the actions of the other owners. This can provide more control over the property than a joint tenancy, where all owners have equal control.

Cons Of Tenancy In Common

  • Lack of a right of survivorship: In a tenancy in common, the ownership interest of a deceased owner does not automatically pass to the surviving owners. Instead, the ownership interest is subject to the probate process and may be passed on to the deceased owner’s heirs or beneficiaries according to their will or state law.
  • Complexity: Setting up and managing a tenancy in common can be more complex than a joint tenancy, as it requires the creation of separate ownership interests and may involve the creation of a written agreement between the owners.
  • Risk of disputes: Because each owner in a tenancy in common has a separate ownership interest, there is a greater risk of disputes between owners about how the property is used or managed.

Purchasing A Home Using A Trust

A popular method to buy a house with three people is to use a trust.  A trust is a legal entity that can hold property co-ownership on its beneficiaries’ behalf. A trust can be set up to allow multiple co-owners to jointly own a property, with the trust as the legal owner. 

Some pros and cons of holding real estate inside of a trust include the following:

Pros Of Owning Real Estate In A Trust

  • Control: A trust allows the parties to specify how the property will be managed and used and who has the authority to decide. This can provide more control over the property than a joint tenancy, where all owners have equal control.
  • Flexibility: A trust allows the parties to specify how the property will be managed and used and can be modified or terminated. This can provide more flexibility than a joint tenancy, which cannot be easily modified or terminated.
  • Avoidance of probate: If a trust is set up correctly, the property can be transferred to the trust’s beneficiaries without going through the probate process. This can save time and money and can help to maintain privacy.

Cons Of Owning Real Estate In A Trust

  • Complexity: Setting up and managing a trust can be more complex than other co-ownership structures, as it requires the creation of a legal entity and may involve the creation of a written trust agreement.
  • Costs: Setting up and maintaining a trust can involve costs, such as legal fees and filing fees.
  • Limited ownership rights: As the co-owner of the property is held in trust, the trust holds legal co-ownership. This means the parties do not have the same ownership rights as they would if they held the property directly.

Buying A Home Inside Of A Limited Liability Company (LLC)

For parties of three or more seeking more protection, purchasing in an LLC or Limited Liability Company is the right choice.  An LLC is a business entity that can own property. Owners of an LLC are called members, and multiple co-buyers can be members of an LLC that owns a property. 

Some pros and cons of holding real estate inside of an LLC include the following:

Pros Of Owning Real Estate In An LLC

  • Liability protection: An LLC provides liability protection to its owners, called members, meaning that the members’ assets are generally not at risk if the LLC is sued or incurs debt. This can be an important consideration for property owners who want to protect their assets.
  • Flexibility: An LLC allows the members to specify how the property will be managed and used and can be modified or dissolved as needed. This can provide more flexibility than a joint tenancy, which cannot be easily modified or terminated.
  • Tax benefits: An LLC can be taxed as a partnership or a corporation, providing certain tax benefits compared to other ownership structures.

Cons Of Owning Real Estate In An LLC

  • Complexity: Setting up and managing an LLC can be more complex than other ownership structures, as it requires the creation of a business entity and may involve the creation of an operating agreement.
  • Costs: Setting up and maintaining an LLC can involve costs, such as legal fees and filing fees.
  • Limited co-ownership rights: As the owner of property in an LLC, the LLC holds legal ownership of the property. This means the members do not have the same ownership rights as they would if they held the property directly.

Using A Mortgage Loan When Buying A Home With 3 People

  1. Joint Mortgage: All parties can apply for a joint mortgage loan together and be equally responsible for repaying the loan. This can be a good option if all parties have strong credit scores and debt-to-income ratios independently. If all co-borrowers apply for and share equal financial responsibility for a mortgage, they must make the monthly mortgage payment together. The payments will depend on the terms of the joint mortgage, such as the interest rate and the loan amount.
  2. Co-signing: If one or more co-borrowers do not meet the qualifications for a joint mortgage loan or have a poor credit score, they can co-sign for a loan with a party meeting the qualifications. The co-signer will be equally responsible for repaying the mortgage loan, and their credit profile will be considered when determining the loan terms. If one or more parties co-sign for a mortgage with a party who meets the qualifications for the loan, they will be equally responsible for repaying the mortgage payment. In this case, the co-signers must make monthly mortgage payments with the co-borrower.
  3. Separate financing: Each party can apply for and be responsible for their mortgage loans. This can be a good option if the parties have different financial circumstances or are uncomfortable with being co-borrowers responsible for a joint home loan. If each party obtains their mortgage loans, they will be responsible for making their mortgage payments. In this case, the parties may contribute to a shared bank account or pay each other directly to cover their share of the mortgage.
  4. Other financing options: Other options may be available depending on your specific circumstances, such as owner financing or a lease-purchase agreement. If the parties choose a different financing option, such as owner financing or a lease-purchase agreement, the terms of the financing arrangement will determine the mortgage payments.

In Conclusion

So there you have it! Three (or more) people can buy a house together using joint tenancy, tenancy in common, purchasing a home using a trust, or buying a home inside an LLC. 

Considering these different co-ownership structures’ legal and financial implications is important before deciding the best option for your situation. It is also advisable to consult with a real estate attorney or financial professional for guidance.

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