With house prices in a number of Australia’s major cities heading skyward, it’s no surprise that home buyers are having to be creative if they want to get on the property ladder.
One way of doing this is by purchasing property jointly with friends, colleagues, co-investors – or family.
The family option is often the most appealing, as these are people you have grown up with and trust the most.
But there’s plenty to go wrong when people pool resources for such a major purchase, especially when there is also a strong emotional investment involved.
Who was it who said never mix family and business? Here are some of the pluses and minuses of making that combined family investment.
The high side of the street
- Greater choice of location. If you’ll all be living in the property, your combined resources might allow you to purchase a property closer to the city or in a more desirable area.
- Move to the next bracket. With one or more family members pitching in, you’ll likely be able to afford a higher quality or much larger house. This gives you the option of extra zones or spaces if you’re going to be co-habiting.
- Shared costs. Your individual burden is reduced as you’ll be sharing deposit, stamp duty, legal fees, conveyancing and maintenance costs with one or more family members.
- Capital gain. You’re on the property ladder with the hope that property prices will go on rising, or at least hold steady. This is a great springboard for buying your own property in the future.
The low side of the street
- Mortgage defaults. Everyone starts off with the best will in the world. Chances are, however, there will be times when someone is late or unable to pay their share of the mortgage. It’s vital to have a contingency plan or spare funds to tide you over until everyone’s back on track.
- Something more serious. In the event of a major falling out, you have to face the fact that someone might bail out on the agreement – family or not. If someone walks out on the deal, what will the rest of you do? Have a contract in place that sets out the terms of the deal.
- Losing track of who’s paid what. It’s complicated enough tracking your own finances, let alone trying to work out what and when everyone else is paying. Keep immaculate records of everyone’s contributions. Think too about setting up a joint bank account from which all mortgage payments are drawn – it’s far easier to keep track this way.
- Arguments about when to sell. Unless you’ve worked it all out beforehand, you’re likely to have a disagreement about how long to hold on to the property. Again, draw up a watertight legal document before you buy – it’s worth the legal fees to head off such a potentially costly argument.
- Living with family members. If you’re going to be co-habiting rather than buying an investment property, think hard. Are you sure you really want to live with your family? Are you compatible? Is the reality going to be different to the dream? Be honest with yourself and think it through. It could lead to fireworks.
If you do decide to go ahead, it’s absolutely vital to consult a solicitor first. Discuss every aspect of the deal, and ensure you’re all agreed on what will happen if someone defaults, wants to sell or ditches their responsibilities.
It’s also highly recommended that every family member involved in the deal has a will drawn up which covers a range of eventualities relating to the property.
Preparing for the worst case scenarios doesn’t mean they will happen. It just ensures that everyone is fully protected, and can sleep soundly knowing they’ve covered all the bases.
Finally? Make sure you are making a sound investment from the start with property inspections in Sydney, Melbourne, Perth or on the Gold Coast. Don’t waste your hard-earned money on a dud property with faulty foundations or borers. Never overlook those vital property inspections, many properties have nasties lurking in places you can’t see.
By Darel McBride
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