With property prices hitting record highs in several state capitals, demand remains strong. The latest research from Raine & Horne reveals a 16% year-on-year increase in the number of groups attending open inspections. Notably, an increasing number of these groups consist of friends and siblings teaming up to purchase a home.  Co-buying can enhance your purchasing power, but planning ahead is essential.

Angus Raine, Executive Chairman of the leading Australasian real estate group Raine & Horne, noted that “property pals” are rapidly becoming a trend. 

Industry research indicates that nearly one in two (47%) Australians are open to the idea of purchasing with someone other than a spouse or partner[i]. However, according to Raine & Horne's financial services arm, Our Broker, 5-10% of properties are being secured by property pals, depending on the location.

 Co-buying can have a lot going for it. By pooling your financial resources it may be possible to get into the market sooner, or buy a better quality home in a more desirable location.

 The flip side is that money and mates can be an oil and water mix. To enjoy a seamless property purchase – and rewarding home ownership experience, it is worth taking five steps:

Have an agreement in writing

Buying a property is exciting. But it's important to go into a co-buying arrangement with your eyes wide open. 

 Have frank conversations with your co-buyer about how costs (upfront and ongoing) will be divided – and iron out all the other nuts and bolts of property ownership.  

Angus advises, “Put your agreement in writing. Better still, have a co-buying agreement drawn up by a legal professional. Yes, it's an additional expense, but it can save a lot of hassle (and possibly the friendship) further down the track.”

 Decide your ownership structure
 

Property is typically owned through one of two different structures.

'Joint tenancy' is where the owners have an equal share of the property. It's a situation that works well for married couples or de facto partners because if one owner dies, the other inherits the entire property.

 Co-buyers may want to consider a 'tenants in common' arrangement. This allows each person's interest in the property to reflect how much money they chipped in – it doesn't have to be 50:50 as with joint tenants. You can choose 60:40 or whatever proportions work for you.

 Keep good records
 

It's worth keeping track of who pays for various property-related bills. This can prevent disagreements about who paid what, and if you decide to sell at some stage, it ensures each buyer gets a fair share of the profits on sale.  

"Some co-buyers share a bank account that each owner contributes a set amount to each month to pay household costs,” says Angus. “There is also a wide variety of mobile apps available that make bill sharing very straightforward.”

Have a clear exit strategy
 

Plan ahead by deciding what will happen if one owner wants to sell the place, and the other doesn't. It can be a tricky situation but if you have discussed the issue at an early stage, each co-owner will at least have a starting point of agreement to work from. 

Remember to address the exit strategy in your co-buying agreement! 

 Seek expert help with the home loan 
 

Buying property with a friend is a serious financial commitment – and a very different ball game from shouting a buddy a few drinks at the pub, or even heading off with a mate on a round-the-world trip.

Craig Betalli, Senior Broker from Our Broker, explains that buying a property with a third party, such as a friend or cousin, effectively means entering a business partnership. “This brings joint liability into play," he says. “If you're entering a partnership debt to purchase a property, you're liable for 100% of the debt, even if another party is involved. In other words, if they don't pay their share of the mortgage, you'll have to.”

 He adds, “That's why it's critical to speak to a home loan expert, such as Our Broker when it comes to funding your home. 

 “Generally, buyers have two main options: take out one home loan in joint names or opt for a product like the Commonwealth Bank's Property Share.” 

 Property Share allows each borrower to manage their loan repayments independently, meaning you have separate loans and cannot see each other's loan details, even though you're guaranteeing each other's security. 

“Additionally, if the other party fails to make repayments, your credit file is not impacted. However, you will still need to resolve the payment issue, or the bank will sell the property to recover the debts,” Craig warns. 

 Having an experienced mortgage broker on board makes a difference, helping co-buyers navigate a crowded home loan market to find the loan that best suits their needs. According to Craig, “Our Broker's service offers tailored advice at no cost to borrowers And co-buyers can be confident they have access to the best value products and rates available.”

 One final tip

 The ING survey we mentioned earlier suggests the benefits of shared ownership can extend beyond buying a pad to live in.

 One in three (32%) Aussies see co-buying as a smart way to kickstart a property portfolio, while a chillaxed 29% would do it for a holiday home.

If it's something you're considering, just be sure to think the arrangement through. 

 “Open communication, a well-thought-out plan and clear written agreement form the foundations of a successful partnership,” says Angus. “But above all, buy with someone you trust and who shares your goals around property ownership. If you're on the same page at the beginning, you could be well set up for a successful long-term ownership experience.”

To find out more about buying a property with a friend or family member other than a partner or spouse, talk to Our Broker today at 1800 913 677. 

 
[i] https://helphub.ing.com.au/financial-health/how-buying-with-a-mate-could-open-the-door-to-home-ownership/