Like most members of Gen Y, the concept of ever earning enough money to buy a house seems completely foreign to me. Unless I win the lottery, or somehow invent the new Facebook, it’s unlikely I’ll ever be able to achieve the great American/Australian/Western dream. Or so I thought.
As it turns out, there’s a steadily growing trend amongst consumers to invest in a property with family or a close friend. If you don’t have a large deposit, buying with family or friends could be an attractive option to tackle the cost of home ownership and help you get into the property market. Co-ownership allows you to combine your earning capacity to borrow more and you’ll only need to pay a portion of the deposit and ongoing property costs.
There are several ways family and friends can help you get into your home sooner, but you should be aware of the risks. I remember reading an article in a women’s magazine (I forget which one) a few years ago, which touted the benefits of buying property with a friend as opposed to a lover. As the article suggested, friendships can often prove far more sturdy that relationships, lowering the risk of awkward post-breakup coffees to discuss mortage splits and whether you mind if he and his new girlfriend shack up in your former love nest. That said, buying a home with a friend or family member isn’t without its own complications and potentially awkward encounters.
If you are considering jointly buying a house with friends or family, be clear about what the arrangement means to each buyer from the beginning. To avoid any disasters and get the most from your shared ownership, consider the following:
• Get advice: You should always get independent legal advice before entering into an agreement with another buyer. This will help protect your interests (and your friendships) in case something doesn’t go to plan.
• Draw up a contract: Formalise the arrangement so everyone knows where they stand from the beginning. This can be done with a co-ownership agreement. Consider things like how you will pay for repairs and maintenance, how long you plan to keep the property, who will live in the property and on what basis, and how you will resolve disputes.
• Have an exit plan: Problems can arise when one owner wants to sell and the others don’t. Make sure you have a written agreement setting out the rules about a sale. For example, the co-owners might have right of first refusal.
• Review the deal: Set up a timeline to review the arrangement and talk about any issues that come up. Make sure each party is represented at these meetings and make notes of any discussions. (Hint: meetings are always easier with a glass of wine in hand)
Also consider the co-ownership structure: Will you buy the property as joint tenants or tenants in common? These are vital differences that you’ll need to consider.
In the case of joint tenants, both parties own the entire asset, so if one owner dies, the other owner acquires their interest automatically. This is the structure most common among married couples.
Under tenants in common, each party owns a percentage share of the asset. If one tenant in common dies, they can leave this interest in the property to a new party in their will.
Pooling your resources with family or friends can be a valuable way to get into real estate or grow your property portfolio; which in turn makes for a damn good pick-up line. Make sure you iron out any issues and have adequate legal arrangements in place to get the most from your co-ownership, and you’ll be laughing all the way to your shiny new front door.