Buying Property With Friends
With house prices at such record high levels it is becoming increasingly popular for people to buy property with friends and family members to help get a foot in the door of the property market.
It seems to make such perfect sense – you get to pool your resources so you have a larger deposit, you can buy something with a bit of room to move, and share costs and both chip in your time for renovations and improvements. Sounds like fun, right?
But before you get carried away with a rosy picture for the future, you must think through a detailed plan of how this could work by brainstorming a suite of contingencies and possible unexpected or unfavourable outcomes to make sure you have a solid understanding of the legal and financial implications of any agreements you enter into. Not to mention the social ones.
Here are some issues to consider:
Brainstorm the “what ifs”
You never know how life or your plans might suddenly change or how the swings or roundabouts of the property market might affect the way you see your joint investment. Here are just a few of the questions you should be asking yourself and each other before you do anything:
- What if I don’t want to live in the house anymore and you do?
- What if I get a boyfriend or girlfriend and he or she wants to move in as well?
- What if I want to sell and you don’t?
- What if the property doubles in value – should we sell then?
- What if I lose my job and can’t pay the mortgage?
- What if the property market crashes and the bank calls in our loan and we can’t both pay?
- What if I get really sick and can’t pay my mortgage?
- What if I spend more time on the renovations than you do?
- What if we can’t agree on the type of renovations that we want to do?
This is just a small example of all the things you need to talk to each other about so you can decide whether you’re on the same page to make a long term financial and lifestyle commitment together.
Get legal advice
A lawyer can help you draft a legal agreement that formalises all the contingencies that you come up with in the brainstorming process so you both have clear guidelines about how your agreement will work and what will happen if any of the contingencies come into play. A lawyer will also be likely to come up with other contingencies that neither or you have thought of – and can help talk you through the process of the legal ramifications of your agreement. For example, it can be a good idea to specify on the agreement that you are tenants-in-common on the title, or otherwise your share of the house will pass to your friend when you die, rather than your family or partner.
You can split your loan but you are both still liable for the full amount
It should be no problem for you to both arrange to get separate loans for half the value of the property, which offers great flexibility so one of you can pay it off faster than the other if that’s what suits you, and you will each just pay the interest on your half of the loan.
However, even though your loans are separate, you are both still liable for the full amount of the loan if the other person defaults on the mortgage. This means, if your friend can’t pay for his or her half of the mortgage, and you don’t have the funds to cover the repayments during this time, then the bank is entitled to sell the house to recover that portion of the loan.
You also need to be aware that if you want to make another loan in the future, the bank will assess your liability to be the full amount owing on the house, not just your portion, so it might make it more difficult to secure a loan on another property.
Testing the friendship
As well as the legal and financial implications, you also need to consider the social ones. As anyone who has lived in a share house can tell you, it can sometimes be very difficult to live with people. Even small issues can become inflamed if you are not in a habit of communicating – from things such as shared chores around the house, sharing food, or having friends over – it’s amazing how complicated things can get when you share your lives under the same roof. Perhaps if you are thinking of buying property with a friend it is a good idea to rent a place with them first to make sure you know what you’re in for.
Best-case scenario
Buying property with friends and family is becoming more popular– there are people out there making it happen and making it work. It’s just a case of being forewarned so you can be forearmed with information, knowledge and professional advice to make sure you know exactly what you are getting into, so you can both cruise through the decision with a smile on your face that lasts the duration of your investment together.
However, before investing in a property don’t forget to research the investment home loans in the market.
Related posts:
- Huge Rise In Friends Buying Joint Homes
- The Effect of GST when buying and selling a property
- Understand the Full Costs of Buying a Property
- Co-ownership works in Buying a Home
- New Trend: Owning Property With A Friend Or Relative
- Buying and Managing an Investment Property
- Things to know about buying an investment property
- What is the Real Cost of Buying a Property?
- Buying A Home – Is Now The Best Time For A Property Purchase?
- Buying your First Investment Property Guide
Top Home Loans
| Home Loan | Details | Interest Rate (p.a.) | Comp Rate^ (p.a.) | App Fee / Ongoing Fee | Max LVR | Min & Max Borrowing | |
|---|---|---|---|---|---|---|---|
 Loans.com.au - Dream Catcher | A home loan offer with a $0 application fee and one of the lowest available home loan interest rates. | 5.85% | 6.21% | $0 / $375 | 80% | $50,000 / $750,000 |
 
|
 Bankwest Online Home Loan | A low interest rate home loan with a $0 application fee and ongoing maintenance fees. This offer is exclusively available by applying online. | 5.97% | 5.97% | $0 / $0 | 80% | $100,000 / $1,000,000 |
|
 Illawarra Home Loans Bank Beater Home Loan | A low variable rate, beaten down even further by 0.05% p.a. after 5 years. | 6.07% | 6.35% | $0 / $345 | 90% | $250,000 / $1,000,000 |
|
 State Custodians Mortgage Company Standard Variable Offset Loan | Awarded the 2011 Non bank Lender of the Year this feature-packed loan rewards customers with a bonus rate drop of 0.25% after 5 years. | 6.02% | 6.23% | $0 / $345 | 95% | $150,000 / $1,000,000 |
|
Ask A Question