Buying property with friends – the good, the bad & the ugly!
If you’re finding it hard to buy a home on your own, an option to consider is to team up with friends or family. By pooling your resources with family, friends or acquaintances that you are compatible with, you may be able to break into the property market earlier than you think. However, there are some important things you should consider before making the decision to purchase such a large asset with someone that may not have the same lifestyle or habits as you.
So what are the legal issues you should be aware of?
Although purchasing a property with your friends might seem a lot of fun in the beginning, when the situation changes and somebody wants to quit, things can get really messy. Two common risks are:
- Your ability to afford a home loan in the future is affected. Being joint with some other person in the responsibility for a loan may make it more difficult to secure a loan for another property in the future because affordability is usually assessed based on the income of an individual, but taking into account joint expenses. Say, a co-owner decides to purchase another property, the bank will not only take the loan into account, they will do so, assessing the entire loan as that borrower’s responsibility. To put you further on the back foot, they will likely only consider 50% of any joint income or rent generated by the property. So you’re hit twice, once with a higher liability and again with a lower portion of the rent from the property.
- The possibility of one owner wanting to sell up. You can also run into problems if one co-owner decides that they want to sell, when the others aren’t ready or even thinking of that.
How can you Minimize These Risks?
It’s rather important that you seek advice from your solicitor before you make the decision to be a co-buyer with some other person, as people’s situations differ.
At the point of setting up the legalities of the relationship, do so having in mind the worst-case scenarios. Although, it’s not quite an exciting thought to have, you should make a decision on what will happen to the property in case a break up or fall out occurs.
Do you know what first home buyer grants are available? Check our first home buyer grants info
So enough of all the technicalities. Let’s talk about some of the things you stand to gain by buying a house with mates.
Monthly Expenses Shared
Once you own a property, besides the mortgage payment, you take up the responsibility of paying for maintenance, repairs, and utilities. One of the things that seem to scare people away from owning homes is all of the extra expenses that ownership comes with. However, if you team up with one or two friends in making the home purchase, you all get to share these expenses, which at least can substantially reduce the financial burden. What’s more, having to share expenses helps your personal finances get better by giving you a breather to be able to build your savings account or pay debt(s).
The longer the duration of time that you live together with your friend and jointly pay mortgage, the more the equity you may gain. Equity is your home’s value less your what you owe the lender. Let’s be real, you will one day part ways with your friend, but unlike renting, owning a home may allow you the opportunity to walk away with some money in your pocket if either you pay down some of the balance or get some equity gains. Both of you can share the proceeds you get from the sale of the home and use the money for a down payment of your own individual places.
It’s just fun!
The biggest benefit of all, you just get to have fun at home! Think about when you’ve living in shared rental house with friends. You spend more time just hanging out at home – their friends are likely your friends, so you can spend more time hanging out at home and less money going out to bars, clubs, restaurants and other public places just to see each other. The difference with buying is it can be a little more permanent, so this is where is really important to consider carefully who you shack up with!
Before you make the call to buy with mates, give Emanate Finance a call so we can discuss your future plans and make sure that it fits with your decision to buy with mates!
Want to know your true borrowing power? Check out our True Borrowing Power Calculator