Buying Property with Family or Friends – Advice will save you money and stress

With property prices continuing to rise, buying a property with family or friends can be a way to enter the property market or build wealth through an investment property.

However, this then means sharing financial commitments, responsibilities and decisions that may affect you for many years.

We can provide advice that helps you consider how a property purchase fits into your longer-term wealth plan, including ownership structures, borrowing, asset protection and tax considerations.

Before buying property together, it is important to agree on how the property will be owned, managed and eventually sold.

The following are decisions and issues that you should consider:

  1. Who owns what share of the property?
  • One of the first decisions is whether everyone will own an equal share or whether ownership will reflect each person’s financial contribution.
  • For example, one person may contribute more towards the deposit while another pays a larger share of the mortgage.
  • Some owners may also contribute through renovations or improvements rather than money.

These arrangements should be agreed upon from the beginning, including how any future profits or sale proceeds will be divided.

  1. How should the property be owned?
  • The title, Joint tenants or Tenants in common
  • The structure e.g. Trust or company ownership

The right structure depends on who is buying, how the property will be used and what each person wants to achieve.

Getting the ownership structure wrong can be difficult and expensive to correct later, particularly if changing ownership triggers stamp duty or capital gains tax.

  1. How will the property be used and managed?
  • Will you be living in it, is it an investment or a holiday home?
  • Each scenario may affect how expenses are paid for.

These arrangements become particularly important if one owner wants to change how the property is used.

  1. What happens if one owner cannot pay their share?
  • The running expenses still need to be paid.
  • The loan structure important, if you have a joint mortgage, the lender may hold each borrower responsible for the full loan, not just their agreed share.
  • This means if one person cannot meet their repayments, the other borrowers may need to cover the shortfall.
  • Unexpected expenses, such as major repairs or renovations, can also create financial pressure.
  1. What happens if circumstances change?
  • Things change, divorce, financial hardship, bankruptcy, illness or death.
  • These events can affect their ability to meet financial commitments or continue owning the property.
  • You should also consider how the property may affect future retirement planning, Age Pension entitlements or aged care needs.
  1. What if someone wants to sell?
  • One owner wants to sell but the others want to keep the property?
  • The first opportunity to buy that person’s share?
  • How will the property be valued and how much notice must be given?
  • How will the sale proceeds be divided?
  • What happens if the owners cannot agree?

Without an agreed exit strategy, selling a jointly owned property can become complicated and expensive.

It is IMPORTANT to understand

  1. Planning for these possibilities before purchasing can help avoid financial difficulties and disputes later.
  2. Before committing to a joint property purchase, it is important to understand how the borrowing may affect your future financial position and borrowing capacity.
  3. A property co-ownership agreement can help
  • A co-ownership agreement is a legal document setting out each owner’s rights, responsibilities and financial commitments.
  • It can cover ownership shares, contributions, ongoing expenses, decision-making and what happens if someone wants to sell.
  • It can also establish a process for resolving disagreements before they become costly legal disputes.
  • If you are purchasing with a spouse or de facto partner, different family law considerations apply, and a Binding Financial Agreement may be more appropriate.

A co-ownership agreement should be prepared with legal advice before you commit to the purchase.

How we can help

We advise on wealth creation, investment strategies, borrowing and asset protection strategies.

  • We can help you determine whether purchasing property with family or friends is appropriate for your financial circumstances and longer-term wealth goals.
  • We can help you consider the ownership structure, financial commitments and exit strategy before you make a decision.

Find out more by booking a complimentary Vision call with us, and see whether our Wealth Health Audit will help you.