Cut the cost of property ownership in half by buying with a family member or friend. Save only half a deposit, pay only half the mortgage and cover only half of the bills. Sounds tempting, doesn’t it?
Property co-ownership is a great way to get a foot in the door at a reduced price but when it comes to mixing money and friendship, there’s plenty that can go wrong unless you take these important steps to forge a successful partnership.
1.Agree on the big picture
Talk in depth about your reasons for wanting to buy, your goals for owning a property and your timeframe for selling. You should both have similar mindsets and objectives.
2.Put it in writing
Have a legal ‘co-ownership’ agreement prepared by a legal professional, which outlines the rights and obligations of each person with a share in the property. It should provide a formula for either of the co-owners to exit the investment – for example, they may have a change in financial circumstance or want to purchase a property with their new partner.
The agreement should also include a mediation clause that outlines how disagreements should be resolved.
3.Know your options for how to structure the loan
A joint mortgage is one way a group of property buyers can apply for a mortgage as it allows them to combine their incomes in order to qualify for a higher loan amount than they would individually. As co-borrowers, you and your partner are held equally liable for repayment of the loan – so if one person stops making payments or makes late payments, the financial responsibility will fall to the others listed on the mortgage to make up for these payments.
‘Tenants in common’ is another way to consider structuring your lending. It allows you to have equal (or unequal) shares in the property, so one of you could own 40 percent and the other 60 percent.
As co-ownership introduces more complexity than a typical individual owner-occupier or investor purchase, you should ensure you choose a borrowing arrangement that protects your investment.
Structure your lending to be as flexible as possible to consider future changes in personal or financial circumstance. We can sit down with you to discuss some ‘what if’ scenarios, such as what to do if your partner suffers a reduction in income or is made redundant.
If you wish to further discuss this method of property ownership, contact us for assistance.
*This information is general in nature and does not take into consideration your individual circumstances. Please contact us for further information.