Buyers beware
You can choose your friends but should you own a house with them? Susan Edmunds has a checklist for would-be buyers.
You can choose your friends but should you pool your finances and buy a house with them?
You spend your weekends with your friends, travel with them, maybe even work with them. And in many cases you’ve rented a flat and lived with them.
But should you own a house with them?
Some young buyers are opting to get into the property market by pooling their financial resources and buying in a group.
Here are some things to think about before you jump in.
Set expectations
Before you buy anything, make sure you have made clear every detail of the proposed deal.
Where do you want to buy? What kind of house? Are you expecting to live in it as flatmates, or to rent it out? How long do you want to own it for?
What happens if one person wants to sell before the others? What if one of you loses your job or can’t work for a time? What will you do if you want to sell and prices have fallen?
Get a lawyer involved in the early stages to help draw up an agreement before you sign anything else. When you buy a house with a partner, there is a certain amount of give and take expected. You each pitch in what you can and expect that, over time, it works out to be fairly even.
But with friends it is different. You will need to consider what should happen if one of your group is a builder or electrician who can do some of the maintenance on the house. How should they be compensated for that work?
If one of you is going to deal with the property maintenance, how should they be paid for their time?
Any financial inequalities should also be dealt with.
If one party is putting in more of the deposit, should they receive a direct refund of that amount when the house eventually sells, plus an equal split of the equity gain?
Or should the equity split always be divided proportionally in favour of the person who put in more to begin with?
How do you buy?
You could set up a company to buy the house, with each owner holding shares, or as tenants in common.
Each of these methods should protect your share of the equity in the house so it is passed to the beneficiaries of your will if you die, rather than being distributed among the other owners of the house.
It is possible to split the mortgage so you each have a portion that you pay off, structured as you want it.
However, you will each still be liable for the total amount, so if one of your friends stops paying their share of the loan, you will have to pick up the tab.
Watch out ...
If you plan to rent the house out, you may compromise your ability to tap into KiwiSaver to fund your own first-home purchase – withdrawals are only available to people who are in the same financial position as a first-time buyer.
You’ll also find that, if you want to take out another loan, the bank will consider the whole loan on the property you own with friends when it calculates your loan-to-value position, not just your share.