It is not easy to buy a property in Australia. The rising prices and tight lending policies with tough competition from investors make it hard for first time home buyers to enter the market. In fact, there has been a decline in the first time home buyers in the past couple of years. The wage rate has not increased as fast as the price of property in the housing market.
Co-ownership of a Property
The dream of buying a house seems more like a distant dream, but there are some investors who have resorted to other options, such as buying with friends or family members. This is known as a co-ownership contract. In this agreement, two or more people enter a contract to have a co-ownership of a property; they have defined and a separate stake in the house. Parties involved in the contract decide the proportion of share. In addition to that, any partner can choose to transfer his ownership to anyone he or she like in case of death.
Pros of Buying a House with Friends or Family
This option enables people to pool their resources so as to improve their purchasing power. In fact, they can buy a house in a suburb where the market value of a property is likely to grow. It will allow them to secure substantial profits in the future.
It also makes it possible for you to enter early in the market. For instance, you will not have to wait for a year or two in order to save enough deposit for buying a house. Choosing a co-ownership option improves your borrowing and purchasing power. Your co-owners cover a shortfall and you don’t have to wait long in order to save a full deposit amount. This improves your chances of buying a house sooner than later.
Moreover, it gives an edge to your loan application and enables you to deal successfully with day to day cost of owning a house.
Cons of Buying as a Group
Although buying a home with friends or family members has its perks, it is not without pitfalls. First of all, each partner in a group ownership is collectively and individually liable to meet the debt obligations; it is irrelevant whether you own more share or less. If any or all the partners fail to pay their share, you will have to make a repayment on their behalf.
Also, it is hard to break out of such an arrangement. You may find it problematic to take an exit from a contract and would probably have to sell a property, even if it is not in the best interest of all the parties.
Things to Consider
This is why it is important to sit with the co-owners and discuss the matter in detail. Before taking any final decision, always take the following factors into consideration:
- Purchase with Fewer People
Try not to have more than three partners when you enter into such a contract. The fewer the co-owners, better it is as it will keep the complex issues to a minimum.
- Be Very Careful in Choosing a Co-owner
Find someone who shares the same values and passions about real estate investment or, better yet, who sync well with your plan to buy a property. Although it is an important decision to buy a property, it is even more important to secure relationships with your friends or family if things go south.
- Do not Feed Your Emotions
Be very objective and your mind when taking such a decision. Make sure each person in a co-ownership follows independent legal advice and the contract is laid out in accordance with their expectations. Having a formal agreement makes it easier for people to identify the issues, talk about it and move forward after a proper resolution.
- Take Risk into Consideration
Whenever you invest in the market, it is very important to take calculated risks. So many factors come into play when you invest in a property. Therefore, carry out thorough research to see what possible issues you have to consider before entering into a co-ownership agreement.
There can be a conflict between partners when one party wants to sell a house in the future, but other party doesn’t. These issues can take a toll on your finances as well as mental health if you are unable to address them in the beginning. Be very transparent and discuss all the possible issues that may arise in the future.
Last but not the least, be very wise when choosing a lender and property. It doesn’t matter if you are buying a house alone or through a co-ownership agreement, be very careful when investing in a property.