Should you buy a property with a friend or family member?

The idea of teaming up with a sibling or close friend to enter the property market has likely crossed a lot of people’s minds. 

After all, you trust your mate Jimmy. He’s a good guy and he always picks up his round. What could possibly go wrong when buying a house together?

If you’re considering jumping into the property pool hand-in-hand with a close mate, you’re not alone. Research from ING found nearly half of Aussies would consider buying with a friend.

Additionally, 46% believe rising house prices will make such agreements commonplace in the next decade.

“We're really breaking new ground here in terms of that generational shift of how to get into the property market,” ING Australia head of daily banking Matt Bowen told the Savings Tip Jar podcast.

“The Great Australian Dream of buying a home is not over.”

Unfortunately, however, purchasing a property is a bit different to shouting another beer at the pub and the process can be rife with complications.

With that, let’s go over the pros and cons of buying a house with a friend or family member and delve into some of the key things you should watch out for.

The benefits to buying with friends or family

Buying a property with a close friend or family member can have its benefits. 

For example, if you trust that person and you’re both ready to make the commitment, then it can be a way to enter the property market much sooner than you’d otherwise be able to on your own. 

After all, not everyone has a partner or spouse with whom to buy a home and it might be nice to have someone to share the cooking and vacuuming duties with.

Not to mention, it can take many years to save a 20% deposit and buying a property with a trusted somebody can help speed up this process.

You might even be able to combine your borrowing power, potentially enabling you to borrow more than you could on your own. 

ING surveyed 1,000 Aussies in early 2024, finding half of Gen Zs would consider buying alongside a mate, as would 35% of Millennials and 28% of Gen Xers.

“The people that are most excited about this are the younger generations,” Mr Bowen said.

“The Millennials looking to get in the property market; they’re potentially early-stage to mid-career now, that have got that deposit together … they're looking at how they can get into the market [and] this opens up a new opportunity for them to potentially purchase a property that is beyond reach individually but that, perhaps collectively, is attainable.”

Image: Matt Bowen

Those who find the idea appealing might expect co-buying to grant them greater flexibility in property location and allow them to purchase a bigger home. 

One in five respondents also said co-buying could see them living a more sustainable, environmentally friendly lifestyle, as they wouldn’t be living alone. 

On another positive note, some first home buyer benefits still apply if you’re buying with a mate over, say, a romantic partner.

The Home Guarantee Scheme was recently updated and buyers can now lean on the scheme if they’re buying with a friend or sibling.

Previously, it was only applicable to individuals or couples purchasing property.

Why buying property with friends or family mightn’t be a good idea

Buying a house or unit with a friend or family member can work for some, but it can also be complicated.

The main criticism of buying a property with a friend or family member instead of a partner centres around finances and ‘what-ifs’.

After all, financial situations and relationships can change – fast. 

“The big risk is obviously the friendship,” Mr Bowen said.

“One of our key tips here is to make sure you're having those long term conversations.

“Friendships ebb and flow throughout your life, people’s circumstances change, [and] you need to have conversations around what happens if one of your friends wants to move overseas. What happens if one of your friends actually wants to move into the property, or move out with a loved one?”

Such lifestyle changes could prove challenging if both parties are jointly responsible for the home loan, for instance.

“Making sure you're super clear, financially and legally, of what the obligations are for co-owners is super important at the outset,” Mr Bowen continues.

“What happens if my friend doesn't pay their their repayments? Am I eligible for those?

“I think the more transparent you can be at the outset, the better this whole thing will play out.”

Getting independent advice from a financial advisor or mortgage broker before co-buying can be a valuable investment in your peace of mind and crucial to your future security.

“Co-buying property with friends or family can be a great way to share the financial burden … and achieve homeownership,” national service manager of conveyancing group Settle Easy and former mortgage broker Josh McKee told Savings.com.au.

“But it also comes with potential legal and interpersonal challenges.”

Image: Josh McKee

Of course, any legal implications will be individual to those considering purchasing a property together and Mr McKee is in no way providing personal legal advice.

Still, he notes watertight agreements between co-owners can help to prevent conflicts.

Be aware of your ownership rights

The first legal aspect a would-be co-buyer might want to lock in is what type of ownership structure would best suit them. 

“The choice of ownership structure for co-buying property depends on the specific circumstances, goals, relationships, [and preferences] of the co-buyers,” Mr McKee said.

“Each structure has its own advantages and considerations.”

There are two types of ownership structures a person buying property alongside a friend or family member can adopt:

1. Joint tenancy

2. Tenants in common

Joint tenancy

In a joint tenancy, all owners have an equal share of ownership in the property.

If one owner were to pass away, their ownership would transfer to the surviving owners. While such a consideration might seem grim, its important to think about in property transactions.

“This structure is often chosen by couples or partners who want to ensure that the surviving owner inherits the property without the need for probate,” Mr McKee said.

“However, joint tenancy may not be suitable if the co-owners want unequal ownership or if they are not comfortable with the inheritance.”

Tenants in common 

Tenants in common is an ownership structure that allows for each owner to hold a unique portion of ownership over the property. 

Each owner can sell their portion of the property independently of the other owners, which could be a positive or a negative depending on your situation.

“This structure provides more flexibility, especially if co-owners want to have different levels of investment in the property or if they are not planning to live in the property together,” Mr McKee said.

A tenants in common ownership structure requires a clearly defined exit strategy to ensure everyone involved knows the plan if one owner wants to sell their stake. For instance, would the remaining owners get a say in who buys the stake being sold?

It might also demand that owners agree whether any or all parties have a right to live in the property. That might be an important consideration if there’s a chance one owner could sell their stake, potentially leaving another owner with an unchosen housemate.

What else should be in writing before co-buying a home? 

Buying property is a complicated venture, and its complex nature is only compounded in co-ownership agreements. 

In order to avoid potential conflicts and smooth out the co-ownership experience, Mr McKee says a legal agreement detailing any and all considerations should be created. 

“This should be prepared by a qualified legal practitioner and signed by all co-buyers prior to settling the property,” he said.

Here are some of the things that should be written into such an agreement:

Who pays for what?

“Clearly define each party's financial contributions towards the purchase,” Mr Mckee said.

Jimmy might be great at keeping track of whose round it is at the pub, but he could be forgetful when it comes to mortgage repayments. 

Make sure it’s obvious who is responsible for paying what, and what would happen in the event one owner didn’t live up to their share of the bargain. 

What happens if one party wants out?

Establishing a clear exit strategy early on could negate mountains of guesswork and arguments if one party were to sell their portion of a property.

Each party should be aware of what will happen if they or their mate wants to leave the agreement. 

Some questions that might demand answering include:

• Can one owner sell their share individually?

• If so, does the remaining owner get a say in who buys the share being sold?

• Would any new owner have the right to move into the property? 

Usage and occupancy

On that, it should be clear whether any and all owners can move into a property or whether the co-owned house will be put into the rental market.

How decisions on maintenance and repairs are made 

“Establish a decision-making process for major issues related to the property, such as renovations, renting out the property, or selling it, as well as how maintenance and repair costs will be handled,” Mr McKee said.

What happens in the case of a dispute?

It could be worth including provisions for resolving disputes between co-owners, even if everything is rosy right now. 

Such provisions could help to avoid costly legal dispute fees later on, Mr McKee notes. 

How to get a home loan with friends or family

Applying for a home loan with friends or family works much the same way it does with a partner or as an individual.

All buyers will still need to meet the usual requirements of having:

• A solid credit history

• A sufficient deposit and borrowing power

• Stable income and employment

• A history of genuine savings and a savings buffer

• No out-of-control debts

There’s also a special type of home loan available for this type of purchase called a property share home loan.

The typical Aussie home loan is a joint home loan. With this type of loan, both parties are wholly responsible for the entire mortgage.

A different type of loan is something called a property share loan.

Property share loans are relatively uncommon and CommBank appears to be one of the only notable lenders to offer them. 

This type of mortgage can act as two different home loans in one, wherein each applicant has their own loan to repay, with each secured against a portion of the property.

For example, if two friends were buying a house together and that house was worth $500,000, they could take out a property share loan and each secure a loan worth $250,000. That way they would each only be responsible for their own mortgage.

Conditions of CommBank’s property share loan include:

• A maximum of two parties can apply

• Each party has to apply for the loan individually

• Each party can choose different repayment schedules (fortnightly, monthly or weekly repayments), but

• Each party must have the same loan period (e.g. both must have 25 year terms, not 25 and 30 years)

• Both parties must act as guarantor on the other's home loan

These loans appear to be functionally very similar to standard home loans in most other ways.

If you’re adamant on buying property but can’t or don’t want to fund the purchase on your own, you might also be interested in fractional property investing.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner-occupiers.

What happens if one owner decides to sell?

Let’s say you’ve purchased alongside a friend or family member and they’ve since decided to sell their stake. You may have found yourself in a tricky legal situation.

That could be particularly the case if you didn’t establish a clear exit strategy to begin with.

According to Mr McKee, here are the steps that typically occur when one owner wants to sell their stake in a co-owned property. Individual situations will vary though, and its best to consult an independent professional:

1. Review the co-owner agreement
   This should be set up and signed prior to the initial settlement of the property.

2. Agree on the sale
   If all co-owners agree to the sale of one party's share, they’ll then need to come to an agreement on the terms, including the sale price and timing.

3. Get a valuation 
   This is to determine the fair market value of the co-owner's share of the property.

4. Offer to other co-owners
   Depending on the terms of the co-owner agreement, the party that’s selling may need to give the other co-owners first right of refusal, allowing them the opportunity to purchase the seller’s share at the agreed-upon price.

5. Negotiate buyout or sale
   If the other co-owners can’t or don’t want to buy the stake up for sale, the selling co-owner can then sell their share to an outside buyer.

6. Transfer of ownership
   Once a buyer is found and the sale is agreed upon, the selling co-owner will transfer their ownership interest to the buyer. This typically involves signing relevant legal documentation. After the sale is completed, the legal documents pertaining to the property, such as the title, will need to be updated to reflect the change in ownership.

Savings.com.au’s two cents

Buying a property alongside a trusted friend or family member is a legitimate strategy, but it is not without its risks.

It’s crucial that both parties are completely clear on their long-term aspirations and wholly agree with the choice of property.

You don’t want to end up in a situation where one of you wants to sell their portion of the property to move in with a new partner or travel the world a year later, so make sure you’re both on the same page.

No matter how closely the two of your are aligned, it’s vital to make a comprehensive legal document before purchasing so to avoid any headaches down the road.

Having a legally-binding co-ownership agreement authorised by an experienced solicitor or conveyancer could be crucial when buying a home with a friend or family member.

Article originally published by William Jolly on 30 June 2020, updated by Brooke Cooper on 24 April 2024.

Photo by Digital Marketing Agency NTWRK on Unsplash

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