They say you should never mix business with pleasure, but buying property with family or friends is an increasingly common way to invest in real estate.
A common practice Buying property with a friend or family member is usually completed as a tenants in common or co-ownership purchase, which allows two or more people to own interest in a property, either in equal or unequal shares. Tenants in common differs from joint tenancy in a number of ways, especially when it comes to passing on your share of the property, so get advice on which one is best for your situation.
Why share and care? The most obvious advantage is that your upfront costs are shared and therefore lowered. This includes the property price and all purchasing costs (such as building inspections and stamp duty), so if you don’t have the sizeable deposit you need to buy a home on your own, you can pool your money. Combining your borrowing power may simply help you all secure a larger home loan for an investment property.
Halve the costs Ongoing costs including the loan repayments, maintenance and property upkeep, plus things like management fees are also shared, which can relieve a little financial pressure.
A family affair Entering into investments with family members or friends can be a rewarding experience, as you have a loved one to share the highs and lows of home ownership with. It’s an exciting time for all.
Pay it forward As a tenant in common, your share of the repayment will obviously be a lot less than if you had the mortgage on your own. With a lower repayment you should, in theory, be able to pay off your portion of the mortgage sooner and, if you decide to sell, get a return on your investment.
Exit, stage left If you are a tenant in common, you have the ability to sell your share of the property or leave your share to whomever you choose. This legal situation ensures a flexible exit strategy.
A lesson in lending There are several ways you can borrow money for your investment property. Your bank or lender may allow you to mortgage each share of the property independently, so each co-owner is responsible only for their share of the property. However, not all banks and lenders permit these types of mortgages. More often than not, all partners or co-owners involved are jointly and severally liable for the debt. Be sure to check your finance options with your broker before any purchase.
Avoid the arguments It’s wise to enter into a co-ownership agreement, which is a legal document that sets out the rights and obligations of each person with a share in the property. This document covers things like what would happen if one person wanted to sell their share, if someone defaults on their mortgage payments, and who has responsibility for ongoing costs. Most importantly, a co-ownership agreement is legally binding on each of the co-owners or tenants in common, giving the security and certainty right from the beginning.
Be sure to check your finance options with your broker before any purchase.