When you want to break into the property market but just can’t manage to on your own, it makes sense to consider buying with friends or family. Before you pool your money together and start house hunting, here’s what you need to know about property co-ownership.
When it comes to owning a home, there are more expenses than just your monthly repayment to consider. That’s why home ownership is out of reach for so many singles. So increasingly, more people are buying property with friends and family in an effort to get on the property ladder.
First home buyers can still access incentives such as the first home owner’s grant and stamp duty exemptions, while for first-time property investors co-ownership can be a more affordable way to start building a portfolio.
With so many benefits to be gained, it’s easy to see why so many are attracted to the idea. But there are some ground rules you should establish before you commit.
1. Define your goals
When you decide to buy with friends or family, you need to make your own intentions clear. Putting everything out on the table early on ensures everyone is on the same page. Things to discuss include:
- Your budget
- The location where you want to buy property
- The type of property you want to purchase
- How long you want to own the property for
- Whether you plan to live in it or use it as a rental
Agree on all the basics so that you can find a property you all agree on.
2. Establish a co-ownership agreement
It’s hard to image things turning sour with someone who is close to you, but the reality is that we never know what the future holds. By having your solicitor draft you a co-ownership agreement you can mitigate your financial risk and put a plan in place to ensure things go as smooth as possible if your relationship runs into trouble.
A co-ownership agreement outlines provisions for the following situations:
- Managing a sale from one co-owner to another
- How rent is determined and tenants and property managers are selected
- How proceeds will be distributed following the sale of the property
- How to manage costs associated with property ownership
- What do when one party wants to sell and the other doesn’t
- Managing mortgage repayments
- What will happen if one party defaults on their repayments
- Who the property will be transferred to if one party should pass away
Some of this can be pretty grim, but it’s also pretty grim going head to head with someone who was once very close to you. Whether you plan to buy with a friend, sibling or your parents, take the steps to protect each other at the onset to make the experience as seamless as possible.
3. Work out your finances
Once you agree on how all the basics, it’s time to look at the financials. In addition to setting a budget, it is a good idea to set up some sort of sinking fund that you both pay money into for repairs and times when the property is vacant.
The mortgage is another important consideration. A number of lenders now offer loans specifically for co-ownership. These loans allow you to pay off the property together while staying in control of your individual finances. They also have features such as redraw facilities and offset accounts.