Should I buy a property with friends or family?

Many investors and home buyers consider it a good time to buy property at present. With interest rates low, and with the current stimulus packages around, many predict we are going to see an increase of Australians return to the property market after being shut out for so long. There is a window of opportunity that a lot of Australians will want to capitalise on.  

The good

Sharing the financial burden of buying a home with a friend can reduce stress, save costs, and decrease the time it takes to save for a deposit. Triple Zero Property Managing Director, Danny Buxton and Tom Wood from FC Lawyers believe there are benefits in pooling funds to purchase a property. However, there are associated risks with buying a property with a friend or family member that Australians should know about. 

The risks

“Buying a property with a friend or family member can be a good way to get into the property market. However, purchasers must be wary of the risks involved from a family law perspective,” Mr Wood explained.

Mr Wood highlighted how if a parent in a de facto relationship tries to help their child, legally both members of the de facto couple have rights to the property. 

“Often, for example, couples are ‘gifted’ funds by a parent to assist them to get into the property market. If the relationship ends, the ‘gift’, more often than not, suddenly morphs into a ‘loan’, which gives rise to added complexities in your family law dispute.”

“If you’re going down this path, make sure everything is clearly documented. If the money is intended to be repaid in the event the relationship ends, this should be set out in a proper agreement. There is also the option of registering the ‘loan’ (assuming it is to be repaid) on the title of the property,” Mr Wood said.

Four elements to consider:

Mr Buxton believes that Australians looking to purchase a house or apartment with a family member or friend need to understand the legal and non-legal risks involved and should seek independent legal and financial advice before signing any contract.

1. Be aware of your ownership rights

When buying a property with another person, Australians have two options. They can either be joint tenants or tenants in common.

When buying a property as ‘joint tenant’, it limits what you can do with your share of the property. This means you can’t simply sell or bequeath your share of the property to someone else. If you buy the property together, you sell the property together. If an owner passes away, that person’s share transfers entirely to the other owner. People should be aware that if one joint tenant wanted to sell and the other one didn’t, then you would have to go to Court to try to force a sale of the property. 

On the other hand, ‘tenants in common‘ split ownership of the property. If you only own 50 per cent of the property, that 50 per cent is yours and you can do what you want with it. This means you can sell away your share at any time. 

Even if you own a property as a ‘tenant in common’, unless you agree otherwise, you have a right of occupation of the whole property. Of course, in practice, there is a very limited market for part-shares of a property.

Technically, if one owner transferred or sold their share, the other person may end up owning and potentially living in the property with someone they wouldn’t otherwise choose to.

If you buy a property with a friend or family member, it would be prudent to enter into a separate agreement about the mechanisms to be put in place if only one of you wants to sell. This could include buying the other person out, having a say in who purchases the share etc.

2. Fully understand your liability if your co-owner defaults on the mortgage

Generally, a mortgage is secured by the whole property, regardless of the relative ownership rights. So, if one of you defaults on the mortgage repayments, you might be at risk of the bank foreclosing on the loan and seeking to sell the property.

There are also lending complications when purchasing a property with co-owners with the financial institution often still assessing the financial capability of one of the owners only around servicing, yet at the same time (if an investment) only taking into account 50% of the rent. Always seek advice from a financier/mortgage broker about the options available to you to protect your interests before entering into any contract.

3. Protect yourself 

If you have purchased a property with someone else or been gifted money by a family member or friend to assist with the purchase, ensure your interest in that property is protected. This includes entering into a financial agreement with your future partner before you live together. This type of agreement is intended to make provision for you retaining that property separate from any other assets you and your prospective partner may acquire if your relationship subsequently breaks down.

4. Buying together as a couple

If you and your partner decide to buy a property together, either as joint tenants or tenants in common, think about entering into a financial agreement as to how the property will be dealt with if your relationship breaks down to avoid expensive and lengthy court proceedings down the track.

Always get good advice

Buying property is a huge financial decision and it is essential to get each step right. If you want good advice, we can help gather your expert team. If you have further questions about buying with family and friends, the team at Triple Zero Property are here to help.

Call 1300 897 000 or email invest@triplezeroproperty.com.au

Disclaimer: The content of this document is not to be considered specific advice. Your situation is specific and individual; as such, you should always consult a registered and qualified professional within a particular area of advice needed.

Five upfront costs you need to know before building

Have you found a block of land?

Are you keen to access the new Home Builder Scheme?

Before you commit to anything, make sure you have enough in reserve for the following:

Five upfront costs (on top of your deposit)

1. Loan application fees – These fees can vary depending on your lender and is a one-off payment. Many financial intuitions will waive this fee but do your homework with regards to interest rates and ongoing fees.

2. Lender’s mortgage insurance (LMI) – if you have a deposit of less than 20% you may have to pay LMI. This exists to protect your lender if you can’t pay the loan. You may be eligible for the First Home Loan Deposit Scheme which assists first home buyers with a deposit of as little as 5 % (new places becoming available from 1 July 2020).

3. Legal and conveyancing fees – this is paid to the solicitor or conveyancer who prepares the necessary documents and conducts the settlement process.

4. The ‘extras’ which are often not included in the contract like a letterbox, roller blinds, water tanks and landscaping etc. At Triple Zero Property we guarantee all this is included in a fixed-price contract.

5. Moving costs – this will depend on how good your mates are! Sometimes it is absolutely necessary to hire professional movers.

Congratulations!

Saving and pulling together a deposit isn’t easy. Just make sure you have a buffer to cover these extras costs.

Need help?

Buying a home is a complex process, that is why hundreds of families over the past 12 years have used our service. At Triple Zero Property we guide you through the process of buying land and building your home, ensuring you have a quality build within your budget. We offer a free service and would love to chat with you about your goals and how we can assist you.

Want to know how we have helped other first home buyers?First Home Buyer Journey

For more information, such as our first home buyers guide email invest@triplezeroproperty.com.

Disclaimer: The content of this document is not to be considered specific advice. Your situation is specific and individual; as such, you should always consult a registered and qualified professional within a particular area of advice needed.

First Home Buyer Journey

Claire and Mitch have been together for three years and had been thinking about buying their first home. This was a significant milestone for them as it was not just the financial decision but a significant step in their relationship. The process of saving for a deposit had required thoughtful discussion about how they handled money and what their goals were.

How long does it take to save for a deposit?

According to moneysmart.gov.au, it takes 4.6 years for an average first home buyer couple to save for a 20% deposit. However, with first home buyer grants and the latest Home Builder Scheme, these contributions can make a substantial difference to the deposit required.

Is property for me?

For Claire, her parents had always been very property focused and building a house was part of her financial plan. For Mitch, he had moved around a lot and the thought of a mortgage weighed on him. It was Claire’s parents who had already bought an investment home through Triple Zero Property, who suggested the couple use their free service to help them find their perfect property.

Why use a service like Triple Zero Property?

Claire and Mitch booked a one-hour conversation with a TZP mentor to iron out exactly what sort of property they both wanted.  By the end of the consultation, they had finalised where they wanted to live and had decided on the style of home they wanted. They were also introduced to an independent mortgage broker to provide financing options. Building a home has a lot of moving parts, and it was helpful to have an experienced team to help guide them through the decision-making process.

What are the upfront costs?

Mitch was worried that although they had a deposit, would they have enough money for all the upfront costs involved in buying a house? This checklist was covered in their conversation with Triple Zero Property, right down to the inclusion of a letterbox and roller blinds in the contract – even who would be arranging the rubbish bins!

How long does it take to build?

Four months after the initial conversation, their new home was built. The thrill of opening the door for the first time was a momentous occasion! Although Claire and Mitch don’t feel this will be their ‘forever home’, they have a quality build, with a great finish, finished on time, with no “extra costs”….and already growing in value.

Most importantly …  it is theirs.

For more information, such as our first home buyers guide email invest@triplezeroproperty.com. We can also share with you an independent property research report National Top 10 Best Buys by Hotspotting.com.au

Disclaimer: The content of this document is not to be considered specific advice. Your situation is specific and individual; as such, you should always consult a registered and qualified professional within a particular area of advice needed.

Who can access the new Home Builder scheme?

Scott Morrison has just put the finishing touches on the new HomeBuilder stimulus package. The housing project led by Housing Minister Michael Sukkar is focused on larger projects and new homes. This is part of a strategy to stimulate the economy and prop up the building industry as Australia moves out of the Covid-19 shutdown.

It has been revealed that families who have previously owned property can access the grant if they meet the income test and eligibility rules.

Undoubtedly the pandemic has had a significant impact on our current economic position. So far, the Australian property market has proven to be very resilient. For the next two to three years, it is about buying in key areas which are affordable but also looking strong for capital growth.  

Are you First Home Buyer?

With the new HomeBuilder scheme, first home buyers also receive the First Home Buyers Grant, which is an additional $15K from the state government (check each state for details).

With interest rates at historic lows now is a great time to be buying.

Are you thinking of building?

Currently, land availability is short, as developers have been on a go-slow approach in turning over new land due to COVID-19 and lending restriction. The HomeBuilder scheme has a 6 month window from the start of June 2020 to access the grant, so it is essential to start the process now.

Building your own home is a huge step and it is important to get each step right. For the past 12 years, we have been guiding clients through the process, from researching the right location and long after the keys have been handed over. This will save you precious time and money because we bring the very best of the display village to you.

What next?

Whether you want to take action and maximise the opportunities that are presenting themselves due to COVID-19 or just have further questions about the HomeBuilder scheme, the team at Triple Zero Property are here to help.

Call 1300 897 000 or email invest@triplezeroproperty.com.au

HomeBuilder Fact Sheet