At BNZ we want to make home-ownership a reality for our customers. And despite high property prices, there are still several ways to get your foot onto the property ladder. One option is to go into partnership with friends or family, and if you’re a first-home buyer struggling to save for a deposit, this could be a great solution. However, you may be worried about the possibility of ruining friendships should something go wrong. So, in this article we explain how to avoid some of the pitfalls when buying a house with friends or family.
The benefits of joint ownership
In the right circumstances, pooling resources with others to buy a house makes plenty of sense. For a start, it enables you to get together a deposit that might otherwise be beyond your means. Joint ownership also eases the burden of other homeowner costs such as mortgage payments, rates, insurance, and maintenance.
The key thing to remember is you are entering a business arrangement, so you don’t let personal issues to get in the way.
With this in mind, think carefully about whom you go into partnership with — being a ‘good guy' doesn't automatically make your friend a suitable person to co-own a house with.
Consider the following
- Is the person financially stable? If he defaults on his part of the mortgage, you will probably be liable for his share.
- Do you have a similar outlook on life? The chances are that you will be living together, so make sure that you can get along. For example, if you cherish your sleep, partnering with someone who parties until the early hours probably isn’t a great idea.
- Does the person have the right business acumen? As we’ve mentioned, you are entering a business arrangement. It’s essential that you be both on the ‘same page' when it comes to managing your investment.
Set a solid foundation
Owning a home with friends or family isn’t always ‘beer and skittles.’ And, if you don’t set the ground rules early on, it can turn into a nightmare.
So, before you embark on house hunting, set a solid foundation by discussing all issues that may arise. For example, what happens if one of you defaults on a mortgage payment? What happens if one partner wants to sell the house and the other doesn’t?
Along with sharing the cost of purchasing a house, each party must also pay their fair share of things like insurance, rates and maintenance, so make sure everyone is clear about their obligations.
Buying a house is exciting, but it also takes lots of time and effort. There are many things to consider, such as location, types of titles, and which real estate agent to use. There’s plenty to do, so just like with the financial responsibilities, it’s important to divvy up the workload fairly.
Because you’re buying a house with someone other than your partner, you need to be super respectful of boundaries and privacy. Let's face it, it won't be so easy for one of you to move out if things turn ugly. So, discuss things like partners staying over, pets, smoking, and how to handle unacceptable behaviour.
Draw up an agreement
If, after a frank and honest discussion, you decide to go ahead and buy a house together, get a solicitor to draw up a shared-property agreement. This will outline all the essential details, including how you will resolve disputes. I know we’ve said it twice already but remember, this is a business arrangement, and if you rely on a handshake or ‘gentleman's agreement' you're asking for trouble.
In an upcoming post, we will cover the legal side of purchasing a house in more detail. Areas covered will include what happens if someone fails to make a mortgage payment, how agreements should be drawn up, and what needs to be signed.
Some final things to consider
- Set up a joint bank account: Doing this makes it much easier to track mortgage payments and shared expenses than if they were going out of multiple accounts.
- Keep an inventory of shared property: If you and your co-owners intend to live together, you will most likely share items like furniture and appliances. To avoid possible disputes in the future, make a list of who owns what, and update it regularly.
- Have an end game: Many people who purchase a house with friends and family do it for the short term. For example, one of you might get married, or one of you might get a new job and need to move to another town or city. So, have an exit plan. For example, will you sell the property, or will one party buy the other out?