Property Investor Advice Column: Part 23
What to think about when buying property with others.
Given how expensive it has become to purchase property, the idea of buying a house with a friend or family member may seem like an attractive idea. Since it reduces the financial burden on each person involved, it allows you to unlock an investment opportunity that you might not be able to access on your own.
Most banks will allow up to four people to make a joint application for a bond, meaning it’s possible to share the cost among a few people. Co-ownership also means you can share the cost of rates, repairs and maintenance.
However, there are also a number of potential pitfalls that need to be assessed carefully. The first thing to consider is that, when you apply for a bond, the bank will take everybody’s credit reports into account. If any one of you has a poor record, you will all be affected since it will impact the interest rate the bank charges. It’s therefore advisable to check everyone’s standing before you start, which you can do for free once a year with any credit bureau.
You must also be sure that everyone is open and honest about their financial circumstances. It’s imperative that all those involved can make a commitment to paying their share of the costs every month. If you are not prepared to discuss your current income and expenses with your partners, then this arrangement isn’t for you.
It’s also critical that these commitments are properly set down in an official contract. Even if you are buying property with a family member, it’s vital that everyone knows exactly where he or she stands. This reduces the risk of disagreements down the line and will therefore protect your relationship with those involved.
It’s a good idea to enlist the help of an attorney. A good lawyer will make sure to specify the proportion of each person’s financial interest, the division of costs and the methods of dealing with a partner who fails to pay at the required time. Don’t underestimate the chances of this happening. You must all know what steps to take if one of you can’t make his or her contribution for whatever reason – including losing your job.
Critically, you must also have an exit strategy in place. What will happen if any of the partners wants to sell their share? This may require selling the property or refinancing it under the name or names of those left. Selling involves other costs and there’s no guarantee the bank would agree to a refinancing, so these eventualities must be considered.
Ultimately, buying a property with someone else has to be managed carefully. If you go into it in an honest and open manner, however, it can also be exceptionally rewarding.
Text Patrick Cairns
Photograph iStock by Getty Images