Achieving harmony when you buy together
About the author
Jane Slack-Smith has been named one of the Top 10 Property Experts in Australia by Money Magazine, one of the Top 4 Financial Influencers by Qantas and been awarded the Australia’s Mortgage Broker of the Year twice.
Mustering a deposit to buy property can be an intimidating exercise and joining forces with a partner, family, or friends could make it a lot more accessible than flying solo. However, it’s a big financial commitment which has the potential to cause tension or even conflict if not carefully handled.
One of the most important things you can do if you are contemplating taking that step is to think carefully about the relationship you have with your potential co-owner.
While things are a little more straightforward if you are buying as part of a couple, it’s increasingly common for people to enter into purchases in a wide range of contexts. In fact, a quarter of Australians have considered buying property with a ‘non-traditional’ partner.i This can include buying with a sibling or a parent or parents who are happy to help their children get a foot in the door. Another option is choosing to take the step with a friend or even a consortium of like-minded individuals.
With any of these scenarios there are a few things you need to discuss together and decide upon.
Getting on the same page
Buying with another or others can be tricky, as there are a lot of decisions to be made about the purchase and it’s essential to make sure you agree on the fundamentals or at least are able to reach a compromise.
It’s a good idea to start by looking at what drives each of you as it’s important to make sure your property goals are compatible.
Why do you want to buy property?
Your motivations for the purchase underpin a lot of decisions and while it’s quite natural for both parties to have different reasons for the purchase your goals must be somewhat aligned.
Things to consider: Is it a forever home or a foot in the door to enter the property market? How does the purchase fit into your future plans? Is it a home for you to live in or an investment property for you to rent out? Does this represent a tree or sea change or downsizing?
What do you want in a home?
The next step is to think about what you are looking for and make some mutual decisions. It’s unlikely you will always see eye-to-eye on every detail so be prepared for discussion and compromise.
Things to consider: The location, the size of the property, available amenities, the age, and condition of the property. What are your respective ‘must haves’ as opposed to your ‘nice to haves’?
The financial considerations
Buying a property is one of the biggest financial commitments you can take on so it’s important to be upfront and honest about your respective financial situations as well as comfort with taking on debt and ability to manage all of the outgoings associated with the property.
Things to consider: Are you able to play an equal role in raising or saving for a deposit or will one party take on a greater share? What will your budget be? How will you manage the repayments, as well as bills and upkeep of the property? Once you have reached an agreement it is prudent to outline the details of the arrangement in a signed, formal document.
Options for the ownership structure
There are two main forms of co-ownership agreement: Tenancy in Common and Joint Tenancy.
Tenancy in Common allows you to split your ownership according to the percentage of your respective contributions (such as 50:50 or 60:40) and enables each person to sell, lease or deal with their share of the property as they see fit. Purchasing as joint tenants means that you both own the property, each with equal rights and obligations.
It’s also possible to buy property as a company or even as a trust asset. Each structure has benefits and disadvantages as well as tax considerations, so it’s important to get the appropriate legal, financial and tax advice to ensure you are aware of all the considerations.
Circumstances change and it’s important to think about what the exit strategy might be, well in advance of when that time comes. This would include discussions about the circumstances you would sell the property and how you would value the property i.e. what happens if one party wants to sell the property or rent it out, or even move into a previously rented property.
There are many ways of making joint ownership work for all parties involved but open communication is critical, so get those conversations going. Please reach out if we can be of assistance.