23 December 2019

Everything You Need to Know About Buying Property with Friends or Family

Pat Carbone
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Buying property with friends or family is a great way to get into the market sooner, with less money saved. Since you’re pooling your funds you may be able to borrow more to buy a better home, and you’ll also split ongoing expenses like insurance, maintenance and body corporate fees as applicable.

There are huge benefits to buying with friends or family, but there are also risks. Putting a plan in place and taking a few precautions is the best way to make sure your purchase won’t ruin any relationships or empty your bank account.

Agreeing on Goals

Before you look at a single property you need to sit down with the friends or family you intend on investing with to talk openly and honestly about your goals.

First and foremost, you need to agree on what type of home you want to buy and where, as well as what your long-term goals are for the property. Is it an investment that you’ll sell after a few years, or a long-term home for both of you?

Putting it in Writing

Once you’ve had a good conversation about what you want out of the property it’s time to put it in writing and create a co-ownership agreement. It’s a good idea to get a lawyer to help draw this agreement up to make sure you’ve thought of everything and that it’s legally binding. Your agreement should include details of:

  • How the property will be purchased.
  • What the purpose of the property will be (i.e. investment or home for shared use).
  • How you will pay for and/or complete maintenance and repair tasks.
  • What happens in the event a co-owner wants to sell their share.
  • A process to resolve disputes if they occur.
  • Identifying who is responsible for property costs such as insurance and mortgage repayments.
  • Agreeing on who is allowed to live at the property.

All these details may seem finicky, but you’ll be glad you created an airtight agreement if a problem arises down the track.

Choosing an Ownership and Finance Structure

When you own a property with another person, banks will often hold you liable for the entire debt. That means if the other owner can’t make mortgage repayments it could be your responsibility to pick up their slack. It also means lenders may evaluate the entire debt of the co-owned property as your responsibility, limiting your future borrowing power.

It’s always best to limit your liability so try to arrange a structure that protects you from being solely responsible for the entire debt if possible.

Seeking Expert Advice

It’s always best to seek expert help if you decide to buy property with another person. A good lawyer should be engaged in order to draw up your co-ownership agreement and help with the details of your property purchase. You should also consider using a mortgage broker, as they’ll be able to give you expert advice on the best way to structure your home loan to protect yourself and the other parties involved.

In today’s property market, buying with friends and family is a great way to get a head start. If you take the time to minimise the risks, your friendship, your bank account and your property will all be better off in the future.

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