Pros & Cons of buying property as a group of friends/family

Hi All,

What are the pros & cons of buying property as a group of friends or family?

Can one title have many loans?

If I buy a 500K house with 4 other people...are there any banks out there who will look at my debt as only 100K instead of the full 500K?

What are some of the legal terms that we can add incase something goes wrong in the future??

What could go wrong?

Any stories to share??

 

Yes there are a few lenders that allow this.

 

Legal agreements are only as good as your willingness to take your family or friends to court.

 

Pros: Increased financial resources.
Cons: Nearly everything else you could possibly think of.

There's been quite a few threads on this, and basically some people *might* consider it for a discrete project that you can get in and out of quickly, but its a "hell no" from me for anything long term.

 

Best way to have family members/good friends as enemies. Sorry, I know it's negative thoughts but if you have seen enough... Also, wait until 2 want to sell and move on but the other 2 want to say. Then they argue about how much it worth so each share should be how much... You will see the best/worst of them, one day.

Of course someone will always raise an example everything works out fine...

 

If any loan guarantees are needed, it gets messy.

 

I've seen family collaborate and sit on a land banking gold mine in Sydney, we're talking a couple of generations would have been set if pulled off correctly, however as with a marathon some people just don't last the distance and nobody won in this instance.

 

Which lenders would allow that?

 

Is it possible to have a co-ownership agreement that is well drafted with some exit strategy should one party's situation change?

But most importantly.....in terms of the mortgage.... Is there a way to split the mortgage so that if one party fails to pay their portion.....only their credit file is affected and not other parties?

 

Nope, all jointly liable for the full amount of the loan

 

Credit file is the least of your worries. The bank is going to come after the rest of you to repay the loan.

 

The only exit strategy that works is to buy the person out, or sell the property. But if you needed the jv you probably dont have the money to buy anyone out.

 

Took this from Aussie.com.au
"property share loans, allowing individual owners to take out their own loan in their own name to finance their stake of the property".

If all parties have their own seperate individual loans against the property, their failure to meet payments will not affect me.....

What if put in place some legal clauses addressing failure to pay, how long we can hold the property for as well as any penalty fees in the event another party needs to break the agreement

Then add a clause that would attract penalty fees if one party were to break that agreement etc

 

As far as I know only CBA have this type of loan (property share) where each party gets there Own loan.

However I have yet to read the contract but I would be fairly certain each party would still be liable for the others....I mean how could they not? If 1 person doesn’t meet their obligations then the bank has to take action and the property will form part of that effecting the other parties.

Also when trying to build a portfolio then yes technically when the new bank asks for OFI you could provide them your loan document but what happens when you need to provide them a rental statement...it’s not going to be in your name OR if it is for whatever reason then the yield may raise suspicion. And then there is the duty of disclosure...I’m sure most brokers would still say you have common debt.

In which case IMO the CBA property share is fairly useless outside of not allowing the other parties to see your loan (which IMO is not really a good thing if your all liable).

 

It's a big fat NO from me.

This is a good way to alienate family and friends.

 

"You’ll need to guarantee each others’ loans as security support"

Just think about it, if one person defaults on their loan, the lender will chase them then failing that will want to sell the security, so it does affect everyone involved, just in a roundabout way.

 

Just make sure you go into any joint arrangements with the exit firmly understood.

 

Dont do it

My partner did this prior to meeting him. Absolute disaster

Because life happens, circumstances could change.

you may start out as friends etc but this could also add strain to relationships and not end well??? Its a risk you take doing business with family and friends

 

Yep as I expected. So the only real benefit here is as I said you can see only your loan.
Which again IMO is not a good thing. If I’m in with other people I would want to see they are making repayments!!!