Have you ever considered buying a home with a friend or family? It can be a great way to get into a property sooner and split ongoing costs to make owning a home more affordable.
With that said, there are risks involved. To make sure you don’t put your friendship or bank balance at risk, we’ve run through everything you need to know to buy property with friends the right way.
The structure
When buying property with a friend, you’ll most likely be ‘tenants in common’. This means you’ll each have separate, transferable interests in the home. In other words you each own a share of the property and you’ll both be free to sell or manage your own share as you see fit.
It’s important that the correct ownership structure is specified on your property title.
The challenges
When buying with friends there can be some challenges involved which can prove costly if you’re not careful. These might include:
- Banks may consider the whole mortgage as your liability but only your portion of the house as an asset, which can make further borrowing difficult.
- Your credit score may be linked to your co-owners, so their bad debt could come back to haunt you.
- If your co-owner can’t make mortgage repayments, you may be held responsible for the entire mortgage.
- If you and your friend fall out, you’ll be stuck together unless one person sells their share.
The solutions
To avoid these pitfalls, you’ve got to consider every possible outcome and gather a team of experts around you to help you buy right.
Here’s what you need to do:
- Agree on all the details: before you even start looking for a property you should agree on all the details. That includes everything from the property’s ideal location and price to a policy on leaving dishes in the sink.
- Create a shared ownership agreement: Once you’ve talked it over, it’s time to put it into writing. This agreement should include details of who’s responsible for ongoing costs and maintenance as well as describing how decisions are made. It should also include a section covering what happens if one friend wants to sell their share or can’t make mortgage repayments.
- Find a local conveyancer: a conveyancer or property lawyer will be able to help you prepare your shared ownership agreement and property title in a way that minimises risk for everyone. They’ll also be able to offer advice on the best way to structure your ownership.
- Get financial help: buying with a friend may make property more affordable but the big banks can be a little cautious of lending in these situations. A mortgage broker will be able to source you a suitable loan and provide advice with the best way to structure your finances in order to protect yourselves, no matter what happens.
Are you interested in buying with a friend? Give us a call today for more advice on the process or to make it happen soon.
