Purchasing property with family or friends can be smart in Australia’s competitive market. It’s a great way to make homeownership or investment more affordable, especially as property prices keep climbing.
Pooling resources can mean better property, shared costs, and less financial pressure for everyone involved.
But buying property with family or friends isn’t just about putting together the deposit. It involves careful planning and clear agreements, so everyone is protected.
In this guide, we’ll go over the key things to watch out for when buying property together, from setting expectations to drafting the right legal agreements.
1. Setting Clear Goals and Expectations
The first step in purchasing property with family or friends is to get everyone on the same page about what you’re aiming for. Are you buying a property to live in, a rental investment, or perhaps a holiday house?
Sorting out the purpose early can avoid disagreements down the line. For example, if one person sees it as an investment, while others see it as a holiday spot, you’re setting yourself up for future tension.
- Define Short- and Long-Term Plans: Talk about both short-term goals, like how the property will be used and managed, and long-term ones, such as when you might consider selling. Agreeing on these points up front will give you a smoother path forward.
- Level of Commitment: Make sure everyone understands how long they’re committing to this investment. Are they in for five years, ten, or longer? Knowing everyone’s plans can help with later decisions about selling or refinancing.
By agreeing on these fundamentals, you’re building a solid foundation that reduces the risk of misunderstandings.
2. Financial Arrangements and Contributions
Finances are often the trickiest part of purchasing property with family or friends, so getting everything clear from the start is a must. Who’s paying what for the deposit, the mortgage, and all the additional costs? Set up a fair arrangement that reflects everyone’s contribution and covers all expected expenses.
- Upfront Contributions: Decide how much each person will contribute to the initial costs, such as the deposit and legal fees. Some co-owners split costs evenly, but if one party is putting in more, that should be reflected in ownership shares.
- Ongoing Costs: Don’t forget about ongoing costs. Who’s responsible for paying the mortgage, maintenance, and utilities? Will you split these equally, or in proportion to your ownership shares? This avoids any surprises when the bills start coming in.
- Ownership Shares: Once you’ve decided on contributions, determine each person’s ownership percentage. This should reflect what each person has put in, and it will matter if you ever decide to sell or if someone wants out.
Sorting out the financial side up front will keep things fair and minimise any future headaches.
3. Legal Agreements: Co-Ownership and Contracts
When you’re purchasing property with family or friends, a clear legal agreement is crucial. It’s not enough to just shake hands—putting everything in writing ensures everyone’s interests are protected. Two main types of ownership structures suit co-ownership arrangements in Australia:
- Joint Tenancy: This setup means everyone owns an equal share, and if one owner passes away, their share goes to the other co-owners. This is often the choice for family members.
- Tenants in Common: This allows for different ownership shares and offers flexibility if one owner wants to sell their portion or leave their share to a family member. This is a good option if you’re buying with friends or want more control over your share.
Drafting the Agreement: Work with a property lawyer to create a co-ownership agreement that lays out ownership shares, each person’s responsibilities, and how big decisions will be made. This agreement should also cover:
- Financial Contributions and Expenses: Clarify who’s responsible for each cost.
- Decision-Making: Decide how you’ll handle major decisions, like selling or refinancing.
- Dispute Resolution: Include a process for resolving conflicts, such as mediation, to keep things civil.
A good co-ownership agreement lets you enjoy the benefits of property investment together, with fewer risks of disagreements down the line.
4. Planning for Future Exit Strategies
While everyone’s in it for the long haul, life can throw unexpected curveballs. One person might need to sell due to financial issues, a job change, or other life events. Having a clear exit strategy in place is crucial when purchasing property with family or friends.
- Buyout Option: Decide if co-owners will have the option to buy out the share of any person wanting to exit. This can be a straightforward way to avoid listing the property publicly.
- Selling the Property: If a buyout isn’t possible, a full property sale might be the solution. Outline how the proceeds will be split according to ownership shares, and agree on a fair timeline for selling.
- Market Value Assessment: To avoid disputes, determine how you’ll value the property at the time of sale. A fair market value assessment by a professional appraiser can ensure no one feels short-changed.
By setting these terms in writing, you’ll be prepared if one person needs to exit, keeping things fair for all parties.
5. Handling Disputes and Conflict Resolution
Even the best of friends or family can have disagreements, especially with something as significant as a property. Establishing a conflict resolution process from the start can help everyone navigate any disagreements constructively.
- Regular Check-Ins: Schedule periodic check-ins to discuss the property’s management, finances, and any upcoming decisions. Open communication can prevent minor issues from growing.
- Third-Party Mediation: If a disagreement arises, consider involving a neutral third party, like a mediator. Mediation can be an effective way to resolve disputes without legal intervention.
- Clear Voting Process: For major decisions, have a voting system in place. If one person owns a larger share, should their vote carry more weight? Agreeing on this helps ensure everyone’s voice is fairly represented.
Proactively setting up a dispute process allows you to address issues calmly and efficiently, preserving both your property investment and your relationships.
6. Tax and Financial Implications
When purchasing property with family or friends, understanding the tax and financial implications is essential. Property ownership comes with its own set of tax obligations, which can affect each co-owner differently.
- Capital Gains Tax: If the property is sold, each co-owner might owe capital gains tax on their portion. This tax applies to the profit made from the sale, so consider how it will impact each owner based on their ownership percentage.
- Rental Income Tax: If you’re renting out the property, remember that rental income is taxable. Each co-owner will be responsible for declaring their portion of rental income on their tax return.
- Deductions: Keep track of expenses related to the property, as these might be tax-deductible. These can include repairs, property management fees, and mortgage interest, which can lower your taxable income.
For guidance, it’s wise to consult a tax advisor who can help you understand your responsibilities and opportunities for deductions.
7. Seeking Professional Advice
Buying a property with family or friends is a big commitment, and professional advice is invaluable. From legal and financial matters to tax implications, a knowledgeable advisor can ensure you’re fully prepared and protected.
- Property Lawyer: A lawyer can help draft a co-ownership agreement and advise on property law specifics, including ownership structures and conflict resolution.
- Financial Advisor: An advisor can help assess if co-ownership aligns with your financial goals and recommend the best way to manage costs and ownership shares.
- Tax Specialist: Understanding the tax impact of co-ownership is essential, and a tax specialist can offer tailored advice for your specific circumstances.
Getting professional advice ensures you’re making informed decisions and sets you up for smoother property ownership.
Summary
Buying property with family or friends can be a fantastic way to enter the market, but it requires planning, commitment, and cooperation. By setting clear goals, financial arrangements, and legal agreements, you can enjoy the benefits of shared ownership while minimising potential conflicts.
Remember, clear communication and professional guidance are your best tools for a successful co-ownership journey.
With careful planning, you can make co-ownership a positive, rewarding experience that strengthens both your property investment and your relationships. You can explore more about how much home and contents insurance costs and what it covers to ensure you’re fully prepared.
FAQ: Purchasing Property With Family Or Friends
Is it worth buying a house with friends?
Buying with a friend allows you to pool resources, making it easier to enter the property market sooner. However, it’s essential to consider the risks and discuss all options thoroughly.
Can two friends buy a house together in Australia?
Yes, two friends can purchase a home as either joint tenants or tenants in common. Joint tenants share equal ownership of the entire property, while tenants in common hold individually owned percentages of the property.
Can you buy a house with your relative?
Buying property with a friend or relative is possible, but it’s crucial to choose the right ownership structure. Options include Tenants in Common, where each person owns a specific share, or Joint Tenants, where ownership is equal and undivided.
Can I buy property off my parents?
Yes, you can buy property from family members, and in most cases, a formal Contract of Sale may not be required. Related parties by blood or marriage often don’t need separate solicitors.
Is it a good idea to invest with friends?
Investing with friends can be rewarding, but it’s essential to set clear expectations, communicate risks, and keep a professional approach. If this seems challenging, it may be best to avoid mixing finances with friends.
Is sharing a house cheaper?
Yes, sharing a house generally reduces costs compared to renting individually, as expenses are divided among tenants, making it more affordable.
