New York City is among the toughest homebuying markets in the U.S., and it’s even more daunting for single people. About two-thirds of its residences are rentals, and the rest typically go to families with wealth or multiple incomes. Starter homes are virtually non-existent.
The city’s homeownership rate since 2011 has hovered around 31 percent, roughly half the national average, and home prices are nine times the median family income, compared with four times nationally.
But some individuals use an alternative buying method to land a mortgage and a slice of the city’s market.
Co-ownership allows two or more buyers to purchase a home that would be out of reach for them individually. It’s the same concept as renters finding roommates to snag a large apartment for less money than each would pay to live alone in a small one.
“As rent continues to be the way it is in Manhattan and New York City, things like co-ownership have become more and more valuable,” said Jason Ritchie, a mortgage consultant.
There’s no data on how common co-ownership is, but Stanley Montfort, an agent at Leslie J. Garfield, a brokerage specializing in townhouses, said he handled two recent transactions involving co-owners in their late 20s to mid-30s who opted to live in the same unit or took separate floors.
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The approach can share the burden of hefty down payments and mortgages, although there are risks for buyers.
“This isn’t going in on a sandwich,” said Michael R. Nerenberg, a partner at Borah, Goldstein, Altschuler, Nahins & Goidel, who handles commercial and residential transactions.
Co-ownership deals aren’t complicated from a legal standpoint because they resemble investor purchases. However, brokers and mortgage brokers need to be sure their clients’ finances are in order, without disclosing sensitive information to the other parties.
People would be more interested if they knew you could purchase units that way.
Brokers have to ensure co-buyers’ interests are aligned — and that they’re being truthful about their intentions. As long as their plans are aligned and they qualify for financing, banks don’t see co-ownership loans as riskier than traditional mortgages.
“The initial phase where we make sure everybody is on the same page, that’s absolutely key in these deals,” Nerenberg said.
Trust is a crucial factor, because one party changing intentions down the road can lead to awkward circumstances.
“You’re only as strong as your least trustworthy member,” Nerenberg said.
Co-ownership only works if buyers’ plans for a property match. One can’t participate as an investor if others are making the home their primary residence.
If someone stops making payments, becomes unemployed or wants to move out, subletting is an option — but only if the other owners approve. Buying out a co-owner is not always possible, such as if parties in the group have maxed out their borrowing.
Failure to clarify responsibilities in advance can lead to disputes down the road.
“We often draft side agreements,” Nerenberg said. “Who gets what rooms, what floor, is someone going to pay for maintenance.”
Townhouses provide more space and layouts suitable for splitting a property. The tradeoff is they don’t come cheap. Their average sale price last quarter was more than $7 million, although in Harlem, Manhattan’s largest townhouse market by volume, it was $2.2 million, according to quarterly data from Leslie Garfield.
That’s still a big down payment, and it’s more manageable split it several ways.
“I think people would be more interested if they knew you could purchase units that way,” Montfort said.