Purchasing a property with a friend can be a key strategy in helping you enter the property investment market sooner than you normally would. It allows you to share the up-front and ongoing expenses of property ownership, thus lowering the financial barrier of entry. In addition, it can make managing the property easier since you can share these responsibilities as well. However before you enter into a property partnership with a friend, there are a few things to consider that will help you ensure a smooth partnership. These include:
1. The structure of ownership. You have several options to consider when it comes to the structure of ownership for the property. The more common one is called a joint tenancy. In this type of arrangement, both you and your friend will have equal share of the property, and as such you will also split the resulting profits evenly. The same rule will apply if there are more than two joint tenants. In the event of the death of one party, the surviving party or parties will also evenly share the portion that the deceased party has left behind.
Then there’s tenancy in common. In this arrangement, each party will have a specific share of the property, which may or may not be split evenly. So for example, if you and your friend decided to buy a property worth $500,000 and you contributed $300,000, while your friend shouldered the remaining amount, then it means that you would own 60% of the property and the remaining 40% would be owned by your friend, based on your respective financial contributions.
2. Get things in writing. No matter how good the relationship with your friend is, always make sure that you get everything in writing when it comes to your co-ownership of the property. The Co-ownership Agreement, for example, will outline the rules that will govern your partnership, especially on things such as selling the property. A solicitor will be able to help you with this.
It may sound like a lot of hassle on both or all parties involved, but this is a necessary evil in order to prevent costly legal disputes should they arise later on.
3. Decide on your exit strategy. It also helps to talk with your friend about your exit strategy. Not only does this need to cover the eventual sale of the property but also prepare for situations should your venture not work out. You might not want to think about it, but it helps to have these strategies already in place if it does happen.
4.Find a home loan that suits your needs. A crucial part of buying an investment property is the home loan. For starters, figure out what features are important to you and determine how much you can afford in repayments. This will help minimise you or your friend’s chances of defaulting on the loan.
When looking to finance your venture, it will help to seek the advice of a professional mortgage broker. They can provide you with access to a wide variety of products, thus ensuring that you are able to take out a loan that is truly suited to your needs.
Written by Steve Milligan.