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”, but they also 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 responsible 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.
