Current property prices and affordability mean that getting onto the property ladder is an increasingly difficult task for first time buyers and consequently more people are choosing to buy a house with a friend or family member.
More lenders are offering joint mortgages or home loan packages especially designed for co-owners.
In light of this, more and more lenders are offering joint mortgages or home loan packages especially designed for co-owners. If you’re buying a property with a friend or family member you should always make sure you have the appropriate agreements set up in advance.
This is the advice of Adrian Goslett, CEO of RE/MAX of Southern Africa, who says there are many advantages to buying a property with friends or family, if the transaction is handled correctly.
“The first point of departure would be an open and frank discussion about what you all want to get out of the venture, how you plan to fund the investment, if or how long you plan to live together and what happens if one of you wants to sell their share of the property in the future,” says Goslett.
He says there are many benefits to buying a property with family or friends, the main advantage being that jointly owning a property reduces the individual financial commitment that home ownership involves.
“Co-ownership,” he says, “is an especially attractive option in today’s economic climate as investors will be sharing the deposit, transaction costs, bond repayments, maintenance etc, and utilities bills making it a much more affordable venture.”
When buying a property with other people, it is important that you keep adequate records and keep track of all payments made and any other documents relating to the property and any agreements made between the parties. “You should also consider drawing up a will and any other legal documents to protect you and your investment,” advises Goslett.
He also cautions that everyone involved in the transaction is responsible for the bond repayments, so if one person defaults on payments, everyone is liable. “This is one of the reasons why co-ownership property ventures should be carefully considered, and based on a relationship of honesty and trust. Joint owners should discuss financial matters surrounding the property and payment thereof honestly and keep each other informed of any potential cash-flow problems well in advance to keep any bad situations from arising.”
For this reason, Goslett says that those considering buying property with family or friends should think about setting up a joint bank account from which the mortgage payments will be drawn. “This account could also be used to pay for any agreed, shared expenses. One bank account will enable everyone to keep track of payments and expenses more easily than if they were going in and out of separate personal accounts.”
“It’s still a buyer’s market and those considering purchasing a property have chosen a good time to invest. Affordability is the crux of the matter, and through sharing the deposit and bond repayments, those property buyers who do not have a large enough deposit or income to secure a mortgage on their own are able to own part of a property through investing with family or friends,” Goslett concludes.
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One of the main things to consider when buying a property with another person is an exit strategy. What will happen if the co-investor wants to sell, (and the other investor not), the relationship turns sour, or on death of either of the parties?. A legal agreement between the parties can address many of these issues. Insurance can also resolve many financial problems at the death of one of the investors as the surviving investor can be faced with a new bond application if the loan to the bank is not settled on death of one of the investors. The investors can also investigate to set up a trust to purchase and own the property to remove the risk of investment from the risks associated with the individual investor- that is to say – if one of the investors are sued or sequestrated – the asset held in the trust can be protected. - M. De Waal
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