Interest rate increases have most likely peaked, drawing property purchasers back to the market. But many are left asking: “How can we possibly afford to get into this market?”
This is particularly the case with singles. Home loan prices are continually bid up by couples with 2 incomes. The tax benefit alone of a dual income family makes an enormous difference to the disposable income available to pay to a mortgage.
Being a de facto or same sex couple is no hindrance at all – but being single is tough!
One creative way to overcome being locked out of the property market is to look at buying with a group of friends. It can also be a minefield though, so here are some hints on how to avoid an explosion which could destroy not just your wealth, but your friendships as well.
It will be an exciting time. You join in a life-changing moment which will put everyone on a bit of a high. But that is exactly when you need to plan for situations in which things might go wrong.
It’s essential you have all been completely upfront from the start about what you want to achieve by purchasing property together, as well as your personal expectations about timelines for purchasing the property, paying it off and selling it. And all of this must be documented in a co-ownership agreement.
You need to engage a solicitor or conveyancer with experience in working on co-ownership agreements, who can advise and create yours and make sure it is suitable, providing the necessary legal protection for everyone involved.
The big question will be what structure your ownership takes. There are two options: joint tenants and tenants in common. Joint tenancy is the most common ownership structure in Australia, as it is how most family homes would be owned.
However, because friends are less likely to share assets and long-term debts than a couple, and less likely to will their assets to each other, the ‘tenants in common’ model would usually be more suitable for this situation.
Under this model, each person owns a specified share of the property’s value. The purchase of each share can be with a varying combination of deposit and bank loan. These shares in the property may be equal, but do not need to be.
So, if you are willing to contribute $500,000 to the price of a property, but your two friends can only contribute $250,000 each, you could own a 50% stake while they each own a 25% stake.
Keep in mind, each stake is in the property’s value, not control of the property. Legally, under this model, each owner has the right to full access to the entire property.
The co-ownership agreement should set out how the costs of maintenance and insurances are divided, as well as how sale proceeds will be divided.
It should also cover plans for depreciation and capital gains tax, choosing tenants or determining rent, selling a share of the property (otherwise there are no restrictions on this under the tenants in common model), and selling the property altogether.
If all purchasers are planning to occupy the property, the agreement should make plans for if one wants to move out but continue their ownership. Under the tenants in common co-ownership structure, the other owners would not be obligated to pay rent to the one who has moved out, as long as they are not restricting that co-owner’s access to the property.
There are many more considerations when buying property jointly, so speak to us early on to make sure you’re doing it the right way.
Integrity Finance Australia has been serving the community since 2006. If you have any questions or want to know what your options are with your borrowing capacity or your home loan, then please email support@ifafinance.com.au , or call us on 03 9511 8883.
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