Buying a property with a friend

Hi guys,
Was looking for your insight regarding my partner's intention of buying a bigger property with friend as co-owner. I am not too keen as I am assuming it will bring in too many complications. But she is like we will figure it out.
What would be the challenges with this approach? I did count her decision making challenges in future and re registration costs if things change etc but that were not enough.

 

Definitely sit down with a lawyer especially those who specialise in properties to draft up an agreement. There has to be a clear exit strategy agreeable for both parties. Everything else will just be the same as any property purchase.

 

Make sure they have a sound exit plan if one wants out.
Best time to agree is before buying.

 

it will

The 5 big ones to consider are

what happens to
a) serviceability
b) if one dies
c) if one has a family law issue
d) if one becomes bankrupt
e) if one loses capacity

and I guess another biggie
f) when one wants to sell and the other doesn't

 

My advice ... DONT ...

 

Experience will also say in many cases it is not "if" it is "when" !

 

If can be done on their own - do it that way.
See so many times people have great intentions, but a lot of the time it doesn't work out.
I've done JV recently, it was my 7th property purchase, I work in the industry - how much experience does each party have?
I would only enter into a JV if there is clear exit strategy, get in make profit, get out
Ideally not for a long term hold

If you're doing it long term, look at CBA Property Share or similar
Loan setup in individual name w/ guarantee for each other.
Ideally this will solve the issue of
a) serviceability with most banks (some banks might still consider the debt of a guarantee - which I disagree with)
but...
b, c, d, e, f) all still real problems which do happen.

 

Close to none. As it will 1st property for them. I shared the insight gathered here with her.
Looks like their intention is to buy a big chunk of land together ( may be with a dead house on it) , sub divide and build or sell as per individual desire.
Not sure how practical it that.

I am assuming it will be significant cost to get sub division done and re register subdivided component in individuals name. Is it a good idea financially assuming other risks are covered.

 

Good point i was only thinking on lines of direct cost of approvals....if the process drags on in years it will be super expensive. If we were millionaires would not be considering buying with someone else.

 

Big project to do as Property #1. Do either of them have any specific expertise they bring to the table? Example; one party has the cash, the other has the subdivision expertise and network to get it done.

If they are both property novices, I’d steer clear.

 

How did this all start? Did they meet at a seminar or something? It sounds like a very ambitious project for people who have few resources and no experience.

 

One has good cash flow and other underestimate bureaucracy challenges.

I agree

 

At times high confidence can be outcome of little understanding of challenges

 

Noted as advised by other members will make sure if this happens it goes through a professional .
I will dig some more on subdivision process and most probably will be able to discourage them.

 

Have you done a feaso to see if it would even be worth the investment.

- Land/property initial cost
- Subdivision costs
- Build costs
- End values

No point spending all that money to find out it would be cheaper and easier to buy a H&L package etc.

A lot more factors come into play with developing.

Need to also think on splitting costs between the parties.
- Deposits
- Legal
- Contingency
- Stamp duty

You will also have other issues like losing FHB grant/stamp duty concession for multiple parties, being liable for the total debt, one or more people losing jobs/change in circumstances/abilty to service etc.

Renting to family can be troublesome enough, buying with a friend? Goodluck.

 

A buy sell agreement would not change this though.