It’s no secret that rising prices across Australia are making it difficult for many people to afford property. One solution that some people are turning to is pooling their resources together with friends in order to buy. While this seems like a wonderful idea in theory, there are several things you need to consider.
What is your goal?
It’s important to discuss with your potential co-owners at the beginning what you are hoping to achieve by purchasing a property together. Are you looking to set the property up as an investment with the hope of using the future equity to purchase other properties? Is this property a short-term investment, with the view to sell in several years time and hopefully make a profit?
Who is responsible?
Right from the beginning it’s important to be clear on who will be responsible for different tasks and duties, even down to arranging the pre-purchase building or strata inspection report. It’s important to ensure that you have a system in place for the future. Discuss who will be responsible for maintenance, bills, insurance, rates, and other ongoing costs.
Mortgages
This is another area you want to have sorted out early on. Regardless of what type of ownership you have, if your name is on the mortgage, you are responsible for the re-payments and any defaults – regardless of whether you’re responsible for the actual paying itself or not.
The ownership structure
How the ownership of the property is going to be set up is perhaps the biggest decision you will need to make. There are two main types of ownership, tenants in common and joint tenants.
Tenants in common is when the ownership of a property is split between the owners. Each person is given a share of the property and each share doesn’t necessarily have to be the same.
This form of property ownership is favoured by people who might wish to either transfer their share of the property to someone else (most commonly a family member) or choose to bequest their share to someone besides the other tenants in the event of their passing.
Some of the key points to this type of ownership include:
- There is no limit to the number of people or ‘tenants’ who can have shares in the property, and each share can be different. While it may seem like a good idea to involve more people and keep the costs down, it’s important to be aware the more people there are, the more issues can arise.
- The shares relate to the amount of money each party contributes to the purchase of the property and the ongoing repayment of the mortgage, insurances, rates and other utilities. If the property is being used as an investment, the rent will be divided between each owner according to their share.
- The individual owners of the property can change over time. Individual owners may choose to sell their share, or transfer it to another person. In some instances, the other owner/s may choose to buy out the shares of the others as they become more financially sound.
Joint tenants is the most common form of property ownership in Australia. It has some similarities to tenants in common ownership, in that more one individual can own the property. However, unlike tenants in common, joint tenants each own 100% of the property. In the event of the passing of either joint tenant, the ownership of the property is immediately transferred to the other joint tenant – regardless of what is set out in the tenant’s will. Important points to remember are:
- Any decision to sell/rent or re-mortgage the property must be made and agreed upon by all the tenants.
- The property must be acquired at the same time by all the tenants. Unlike tenants in common, individual tenant shares cannot be sold during the ownership of the property.
- All third party deals and arrangements (including mortgages and insurance) must be acted upon as a single owner.
Before making the decision to purchase a property with friends, ensure you have discussed each other’s goals and expectations to make sure there are no surprises down the track. By doing this and seeking professional advice before signing on the dotted line, you will be on the road to a happy home ownership in no time.
By Darel McBride
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