It’s no secret that Australia is being hit by a wave of surges in the cost of living. Data from the 12 months prior to March 2022 showcased the highest-ever increase (5.1%) of the Consumer Price Index (CPI) across the country since the introduction of the GST in 2000.
Whether as a result of supply shortages from ongoing global situations or a fallout of the 2019-20 pandemic, one thing is clear — Australian buyers have to adapt to the changing cost of living. One way that buyers have started to turn towards, is buying property with shared funds from family or friends as a way to lower the financial barrier to entry into the lucrative property market.
So if you’ve been looking for a more approachable alternative to buying your own property, read on as we provide a detailed look at the pros and cons of joint property ownership with family and friends, as well as our expert recommendations on the right and wrong ways to do so.
Pros of buying property with family or friends
As one of the biggest purchases most people will make in their lives, buying property often takes a huge toll on household finances. To circumvent this, more and more Australian buyers are now pooling their savings together to purchase property, whether for housing or investment.
Combined finances for more buying power
Bringing finances together with others will naturally open up more property options than what may be available with one individual’s funds. The buying party will enjoy much more purchasing power and will thus have more choice in terms of the ideal property they wish to purchase.
Fast track purchasing
With a bigger share of finances, buying parties will have more than sufficient resources to expedite the purchase process. This includes greater ease of getting loans approved and having the ability to spare expenses for a conveyancing service.
Share the financial responsibility
Property mortgages can be a heavy burden depending on the loan term, but with more parties sharing in repayments, they can be split into more manageable amounts. This gives each buyer in the party more flexibility in their finances since they will not have to contribute a large portion to repayments.
Work together towards goals
The benefit of buying property with family and friends is that everyone can work together towards a common goal for the property, especially if it’s an investment property. It’s a great way to share in the lucrative rewards as the property grows in value.
Cons of buying property with family or friends
However, buying property with family and friends is not all sunshine and rainbows – there are some considerations and challenges that can arise during the term of collective ownership.
Potential to fray friendship/relationship
Some live by a rule of never engaging in business ventures with family or friends — and it’s the same when it comes to buying property. Everyone has their own opinion on what’s best for the property, and this can create conflicts between buying party members and can eventually grow into negative or frayed relationships with family or friends.
Pressure to maintain the relationship
Collective ownership can also result in unwanted pressure to maintain relationships, especially under unhealthy or even abusive circumstances. Owners can feel compelled to stay in a conflict-laded relationship for the sake of their own stake in the property.
Difficulty selling the property
Conflict between owners is one possible reason why they may choose to sell the property, but it can also arise as a result of a need for more flexible finances. Since all owners have a stake in the property, they must all agree to sell. If they cannot reach a resolution, the matter must be taken to court.
Potential to damage credit score if the other party defaults
When one or more individuals within the party become unable to make repayments on the property, the repercussions of their default fall on the whole buying party, causing the rest to potentially suffer damage to their credit score which in turn limits their future borrowing ability.
First home buyer eligibility when buying with family or friends
The first home owner grant, available in most states and territories across Australia, awards significant financial benefits to those who have not previously owned a home before.
Eligibility for getting the first home owner grant when buying with others will vary based on the state the property is being bought in, but as a general guide, all members of the buying party must:
- Be at least 18 years of age
- Have not owned or co-owned another property before
Most notably, the second point of eligibility above means that if any one member of the buying party has owned any property in the past, this will render the property purchase ineligible for the first home buyer grant. If you’re thinking of buying property with friends or family, it’s important to know that you won’t be eligible for a first home grant if they have previously owned property.
Tips to ensure you’re buying with the right people
As buying with others offers both benefits and potential challenges, it’s essential that the focus of your decision making should be centered on who you choose to buy property with. Here are some key tips for doing that:
Make sure you know the person well
Trust comes with time – always ask yourself if the person you want to partner with to buy a property will be a cooperative asset rather than someone who may cause disagreements later on.
It’s not guaranteed, but choosing people you know well, in terms of their character and personality, is more likely to reduce the event of disputes over the property in future.
Make sure you understand their finances
Not everyone has enough finances to support the purchase of a house, especially when it comes to mortgage repayments. Make sure each party has a transparent review of each other’s finances and circumstances to ensure that everyone can contribute their part.
Consult with a lawyer & sort out a contract
It may seem unnecessarily formal to some, but having a written and binding contract or agreement with all members of the buying party is a good way to ensure that the goal and interests of the property remain aligned, especially when disputes occur in future.
Aus Property Professionals are the experts when it comes to helping Australians build wealth with property investments. Whether you’re an individual investor or a party of family and friends looking to get into Australia’s lucrative property market, we’re here to help. Our expert buyer agents services in Sydney and across other states and territories can help you and your partners build a high-value portfolio that will grow along with your relationships. Contact us today to get started!
