Buying a property with friends and whānau can be a fantastic idea, and in some cases it is needed to get into that first home. It is, however, also important to understand the consequences of buying with others. As with anything else, there are pros and cons, so let’s explore them in this blog post.

Buying Property With Others: Friends and Family

As mentioned earlier in this workbook, you may want to consider buying with others if you struggle to get a mortgage approval or come up with a deposit. It may mean buying your first home with a friend or a family member. Let’s look at the pros and cons of this and the implications involved if you decide to buy with others.

Pros of Buying a Property with Others:

  • Increased Buying Power: When you buy with others, you have more money, meaning you have a higher buying power. This opens up the market as you can now look at properties that you individually (or as a couple) cannot afford.
  • Shared Expenses: By buying with others, you share costs related to the property, such as mortgage payments, utilities and maintenance. This can be a true game changer for people who may struggle to meet mortgage payments on their own with their current income.

Cons of Buying a Property with Others:

  • Financial Dependency: Co-ownership may lead to financial interdependence, and if one party faces financial difficulties, it could affect the property and put stress on the others. This is why you need very clear legal agreements.
  • Conflict Over Finances: Disagreements may arise over financial decisions, such as renovations, upgrades, or selling the property. Again, clear communication and legal agreements are essential – even if it is your best mate.
  • May affect future borrowing capacity: You are liable for the full loan, which may affect your ability to borrow money in the future. We go into detail about this on the next page.

Importance of Clear Communication and Legal Agreements

We have already mentioned how important clear communication and legal agreements are if you decide to buy with others. Open, clear and transparent communication is crucial. Discussing expectations, financial commitments and long-term plans can help prevent misunderstandings and conflicts. Basically, you need to know what happens if the dishwasher breaks, if the roof starts to leak or what happens if one of you breaks something. Of course, all of this needs to be written down in actual legal agreements. No, a verbal agreement over a beer is not going to cut it. Everything needs to be written down in a legal agreement to avoid any future disputes.

Speaking of legal agreements, when considering property ownership structures, it is essential to understand various co-ownership arrangements, such as tenants in common or joint tenancy. Additionally, when determining the legal title, clarify how it will be held. Specify ownership percentages and individual responsibilities to ensure a clear and legally sound framework for co-ownership. Otherwise, the process of buying with another person is very much like if you were buying a property on your own. The process as such is not different.

Components of a Co-ownership Agreement:

  1. Ownership Percentages: Clearly define each co-owner’s share in the property to avoid disputes over equity and decision-making authority.
  2. Responsibilities: Outline the responsibilities of each co-owner regarding property maintenance, repairs, and financial contributions.
  3. Exit Strategies: Establish procedures for selling or transferring shares if one party wants to exit the arrangement, preventing complications in the future. It is often helpful to put this into real life context, e.g. partner 1 gets married and the partner wants to buy into the property – what happens in that scenario?

Impact on Future Buying Power

When buying with others, there is one important thing to keep in mind. You are liable for the full debt. This means that if the mortgage is $500,000, you are liable for the full debt – even though you share it with another (or multiple) people. This can potentially affect your individual buying power in the future, should you decide to buy another property. Therefore, it is important to talk about financial goals and think long-term. Also bear in mind that any late payments can impact everyone’s credit scores. This is all very well explained in this article from Opes Partners.

 

Disclaimer:

Everything shared in this blog post is general financial advice. For financial advice tailored to you, please book a kōrero with us.