For many Australian expats, and particularly those living in Australia, buying property with a friend can be an attractive strategy to get onto the property ladder. With property prices in Australia now being out of reach for many Australians, given the size of the deposit required, it’s important to consider what other options you have at your disposal. One option is to purchase the property with the assistance of your parents or family members acting as guarantors. There is then the option of buying a property with a friend or group of friends, which we’re often asked about by our clients.
While buying a property, whether to live in or as an investment property, with a friend can be an exciting idea, it’s important to consider the risks and plan accordingly. Before we outline our checklist of key risks and considerations to plan for, let’s consider an all-too common scenario:
Jeff & Barry are two Australian expats living and working in Singapore, in fact they’re colleagues at the same financial firm. Both are currently single and in their early 30’s. Jeff has been looking to get into the Australian property market for some time and convinces Barry that the two of them should go in together, and then they could afford a much better property while contributing less than if they were to go it alone. They find a property and end up purchasing a house in Perth for $650,000, which they jointly own having contributed 50% of the deposit and purchase costs each. All is going smoothly for 12 months, until Jeff meets his new girlfriend, and decides that he wants to move back to Australia and buy a new property with his new partner. The problem is that based on his income, Jeff’s borrowing capacity is limited by the fact that he already has an existing mortgage with his property jointly purchased with Barry, he decides that he ‘wants out’ so that he can start his new journey with his girlfriend in a home of their own.
This brings up a range of questions and considerations that should be planned for, such as whether Barry should buy Jeff’s half of the property, should they have set a minimum holding period, what other options could Jeff have considered to buy the property with his new girlfriend..? Most importantly, this all-too-common scenario highlights that life can and will change, and we therefore need to plan for this when it comes to buying property with friends.
1. Outline a minimum holding period
Both parties should agree to a minimum holding period to avoid either being forced to sell it too quickly following the purchase. This may simply result in both parties facing high purchase and sale costs, with very little to show for it. You could agree on a range of caveats to the minimum holding period, but ensure that neither will be disadvantaged due to minor changes in lifestyle.
2. Commitment to sharing expenses
Ensure that you agree to meet all expenses jointly, such as operating costs for the property. As each party is liable for meeting the expenses, it could be quite easy for either to simply overlook the ongoing payments without the appropriate agreement in place.
3. Ensure that they have a steady income
It may not be the smartest idea to enter a property purchase with someone who has an unstable employment or income history. You could easily find that you’re left to cover all of the ongoing expenses while your friendly is ‘actively’ looking for a new job.
4. Agree terms about living in the property
If the property is designed to be purchased as an investment property, you may wish to agree that neither party will live in it. If you are purchasing it as your primary residence, then you may wish to stipulate rules about other parties also living in the property, such as significant others. One party may quickly find that they’re paying for the groceries, electricity and other household items for the significant other of their friend, which can quickly create tension in the relationship.
5. Ensure that you’re on the same page
It’s important that you and your friend are on the same page when it comes to your property purchase. If it’s an investment property, ensure that you both have the same strategy in mind, including the time horizon and investment outlook.
Buying property with friends isn’t a strategy that needs to be avoided at all costs, however you should ensure that you plan for the range of outcomes and do your own homework before starting on the journey.
LoanSuite Pty Ltd is your lending partner for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.
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LoanSuite Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.