Buying Property with a Friend? Make Sure you Know this First.
Thinking of investing in property with a friend? Avoid ruining your friendship by doing your research first. Pooling your resources with friends or family is a great way to get a start in the property market without breaking your budget. But, investing in property together is a big step with many niggly processes and procedures involved. It pays to be aware of what you’re getting into together and have a plan for each step of the way.
Advice for Buying Property with a Friend
- You will only need to save for part of a deposit, but remember to budget for hidden costs like stamp duty, fees and taxes.
- Decide how long you intend to hold onto the property.
- Predetermine the ownership split and how much each party will need to repay from the home loan over the time you intend to own the property.
- Have a plan in place to manage buyouts if any of the parties choose to opt out of the investment. It’s common in this scenario for the seller to offer first right of refusal to the co-owners to buy their share of the property.
- To avoid future family disputes, engage a solicitor to write a legal will for you which outlines who will inherit your share of the property and assets should you be incapacitated.
- Plan how you will manage unexpected maintenance and repairs fees. If one co-owner pays for repairs or maintenance to the property without the consent of the other co-owner(s), the others are not legally obliged to contribute to those expenses.
- Decide how you will manage factors like taxes, rates, depreciation and insurance issues.
- Be aware that you will be responsible for each other’s home loan debt. Taking out a joint home loan on a shared property could affect your ability to loan in the future. If you do apply for a home loan in the future, mortgage brokers treat the joint loan for the shared property as your sole investment. Other parties involved in the loan won’t be taken into account – meaning that if the loan acquires bad credit, your ability to gain a home loan or construction loan in the future could be negatively affected.
- However, if the property gains value and the home loan is paid in the green, you will achieve a good credit rating with your bank or mortgage brokers.
- Decide who will pay rent and how much. If any of the co-owners are intending to occupy the property, they do not legally have to pay rent to any other co-owner if they are not excluding them from using the premises, so it’s a good idea to set out an agreement outlining which of the co-owners will need to pay rent and how much.
- If you intend to tenant the property, plan who will select tenants and how rent payments will be divided or dealt with administratively.
Pooling resources with friends and family to buy a shared property could allow you to enter the property market earlier and get a head start on investments, just make sure you consider all the factors involved to ensure you make the right decision for you.