How to team up to buy property with your friends

With housing prices skyrocketing in all the capital cities in Australia, it’s safe to assume that buying a house by yourself won’t happen. So maybe you could start by daydreaming about teaming up with your friends.

Believe it or not, you can buy property with anyone, it doesn’t necessarily need to be a romantic partner. You can buy a house with your sibling, your uni best friend, even your high school ex (but why would you buy with an ex?).

The benefits of buying property together

By teaming up with someone, or a group of friends you’ll have your foot in the property market sooner rather than later. 

You will also be able to split the costs that come with owning a house. This includes: the deposit, monthly repayments, maintenance and property management bills, local council fees, house insurance and so on. Buying together may also allow you to purchase a bigger home or in a better area.

When it comes to a home loan application, typically lenders do not change their requirements when there are multiple people on the deed. As a group, you’ll need to take the usual steps that come with purchasing a new home.

This includes:

• A deposit 
  
• Applications to possible grants
  
• Getting your credit rates checked
  
• Having proof of income
  
• Getting your debt in order

The risks of buying property together

It is easy to forget that friendships may become strained when dealing with huge amounts of money. While joint ownership is quite common in the housing market, the more people that get involved, the more problems you may face.

An example of this is if one of your friends changes careers or loses their job and can no longer afford to make the repayments. Who will become liable for making those extra payments so you don’t fall into default? Or what if your friends get a job in a different city and want to sell their share of the home? Who will be responsible for buying out their share? Will you and your other friends on the deed be able to afford losing someone from the ownership?

When you buy property with a group of people, you also end up owning less of the house’s equity.

There are lots of possibilities to consider when it comes to co-ownership, so it shouldn’t be a decision made on a whim.

Other risks include:

• Whether to refinance
  
• How to split income and costs associated with the house
  
• Selling the property in the future
  
• Will you share a loan or have a split loan

Figure out your mortgage structure

Just because you are co-owning a home with your mates that may not necessarily mean that everyone will have equal shares of the property. It is entirely possible that not everyone on the deed may even live in the property. That’s why it is important to figure out what sort of ownership structure you will have

Joint Tenancy

In a joint tenancy, everyone has an even share of the property and if someone dies the surviving friends absorb full ownership of that share. While at a glance this structure seems like the most ideal and maybe even fair, in actuality it might make joint ownership a bit difficult if someone decides to go their separate way. In a joint tenancy, you don’t have the right to sell or transfer interest because you own the property as a group rather than a couple of individuals.

Tenancy in Common

This co-ownership structure is considered the most flexible because it allows two or more people to have a share of a property and be able to transfer their interest independently. It also allows you to own the property in equal or unequal shares. Later down the line, if someone wants to leave the co-ownership a tenancy in common makes it easier to split or sell your individual share.

Make sure to put your agreement in writing

There are several what ifs that come with property ownership, and having a legal document which dictates the rights and obligations of everyone in the co-ownership may save you potential trials and tribulations.

This agreement should include and explain:

• Who resides in the property?
  
• Who is responsible for the repayments and maintenance fees?
  
• What happens if someone dies?
  
• What happens if someone  is unable to meet their share of the repayment?
  
• What if some becomes bankrupt, loses their job or income?
  
• What are the requirements to leave the co-ownership?
  
• Who is in charge of cleaning the toilets?
  
• Are pets allowed?

It might feel weird signing an agreement with your mates, but it’s better to be safe than sorry. Also, it could be a good thing to have in hand if anyone plays the “I didn’t know that” or “We didn’t agree to that” card.

While it might sound like fun and games to own a house with your best mates, it is important to remember that buying a house is a big financial responsibility. Buying a house together is very different from buying concert tickets together!

If you and your mates are in the market for a home loan, visit Mozo’s home loan comparison page to find the one that is right for all of you.