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Getting a foot on the property ladder with family and friends
Buying a property is a big investment! With Auckland property prices remaining high, we are increasingly seeing family and friends joining forces to buy property together. Like most decisions in life there are benefits and risks, so what should you consider before taking the plunge?
Sharing the financial burden
The obvious benefit of purchasing a property with family or friends is that costs are shared. This includes the cost of conducting due diligence on a property (for example a building and LIM report), loan application fees, conveyancing costs, as well as future outgoings to live and maintain the property.
Another benefit of co-ownership is bank loans can be separated, so each person (or couple) can be responsible for the repayment of their “own” loan. Although keep in mind that all parties will be jointly liable to the bank should another party default on their repayments.
Living together in perfect harmony
If it is a first home and you are withdrawing KiwiSaver funds, you must live in the property for at least 6 months. If you are intending to live in the property together, you will of course want to be selective who you choose to live with! Are you happy to live with these people? What happens if they lose their job and can’t contribute to the outgoings? How well would you work together to resolve any issues that may arise?
Types of home ownership
You can own the property jointly, or as tenants in common in equal or unequal shares. The main difference is that if one owner passes away, their share of the home is automatically transferred to the remaining owners. Owning a property as tenants in common means your share of the property may be dealt with in accordance with your Will. If you don’t have a Will – now is the time to put one in place.
What’s a Property Sharing Agreement (PSA)?
Relationships can shift and circumstances can change. When buying property with friends and family, we strongly recommend entering into a PSA. A PSA sets out each party’s rights and obligations in relation to the property and is recommended for joint ownership. A formal agreement avoids any misunderstandings and covers things like who pays for what and in what shares. The agreement also states what would happen in the event of a sale by some, or all of the owners.
More information, tips and tricks for buying property is available on the Settled website at: https://www.settled.govt.nz/blog/should-i-buy-a-house-with-a-group-of-friends/
Obtaining some advice at the outset can ensure you start and finish the process together, as friends!
Tina White is a Registered Legal Executive for ClearStone Legal.
p: 09 412 2005
