Buying with a friend seems like a good idea,
doesn’t it?
It’s certainly been a popular strategy over the
past decade or so given higher property prices, plus more people choosing to
stay single longer.
The power of two is always stronger than the power
of one when it comes to property after all!
There is no doubt that purchasing a property with a
friend or a family member can help people get on to the property market more
quickly.
However, there are a number of unique issues that
this strategy presents as well.
Future-proofing
Young people, in particular, don’t think about the
future overly much.
Not only do they think that anyone
over 40 is "ancient”, they don’t consider how their lives might change in the
years ahead.
While they might not be considering their future
lives, many do want to get ahead financially so are keen to buy a property
sooner rather than later.
Many do this by co-buying with a close friend or
perhaps a sibling for predominantly affordability reasons.
They’re usually quite young and single so the
thought of meeting their significant other is probably not on their radars yet.
And therein can create the first problem, because
buying a property together is a long-term commitment.
In fact, it’s a long-term relationship – and we all
know that relationships take work!
One of the main issues with co-buying is not
thinking through what will happen when one party wants to move out with their
new boyfriend or girlfriend at some point in the future.
They also might want to sell when the other person
doesn’t want to do any such thing.
That’s why having these conversations early is
vital, because it sets a clear path of what both of you want to happen as your
lives continue to evolve in the future.
Perhaps you agree to both shift out and the
property becomes an investment or maybe the person who stays agrees to pay the
other person half of the market rent?
Whatever you decide, it’s important that it’s
discussed at the outset not when it’s about to happen.
Loan responsibility
Another issue that may arise is when one person
decides to buy another property.
The property that they bought with their brother,
sister or friend, has increased in value somewhat so they’re confident of
getting another home loan.
However, they soon learn that while they
technically only own half of the property, they are responsibility for the
entire loan!
That’s because whether your ownership structure is
joint owners or tenants in common, each person is legally responsible for the
entirety of the loan if the other person can’t pay their share or defaults.
As you can easily see, then, this can have a big
impact on your loan-serviceability because having a $200,000 loan
against your income is very different than having a $400,000 one.
Now, I’m not trying to scare anyone out of
investing in property with a friend because being in the market is usually better than being out of it.
I guess the point I’m trying to make is that before
you decide to invest with someone else, you must consider the end at the
beginning.
That way, there will be no surprises, and your
property relationship – as well as the one with our friend or relative – is
much more likely to last the distance needed to achieve above-average capital
growth.
article source: https://propertyupdate.com.au/
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Jason Gwerder
Monday, 8 February 2021
