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Purchasing investment property with a friend

Discussion in 'Property Finance' started by John123, 25th Aug, 2016.

  1. John123

    John123 New Member

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    Hi!

    This is such a good resource and I was hoping you could help me with an issue I have come up against!

    I'm looking to purchase an investment property with a friend, we both came over from the UK 4 years ago and can't afford to buy individually.

    We met with a broker last week and she said they we would have to be joint borrowers, and that would mean that if we look to purchase another house in the future separately we would have to declare the whole debt, not just the 50% we are individually liable for.

    Is that correct? Are there any banks that will let us take out separate loans, we will both be on the title? Is there anything we can do to get around it? It makes it really unattractive to do if that's the case.

    Thanks for the help!
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Yeah that's correct, which is what typically makes it a bad idea.

    When you go to buy your next investment property, say the first is a $300K property with 300pw rent, the bank will calculate your ability assuming you have $300k debt and 150pw rent so you can see how that snowballs into a bigger problem, especially if you do it multiple times.

    There's other pros and cons to buying an investment with a friend
    - Yes, allows you to get in while you couldn't have otherwise
    - What happens if one of you has a life event (married, divorced, child, dies, etc) and needs to sell while the other person doesn't
    - What happens if you have an argument with the friend, either relating to the property or anything at all - eg if he starts saying Arsenal are better than Liverpool and you're stuck in a long term investment with the guy.
     
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  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Spot on - except for a couple of lenders (AMP and STG) who will take into account your portion of the liability when calculating servicing.

    Cheers

    Jamie
     
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  4. Brady

    Brady Well-Known Member

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    Yes there is a bank. CBA - Property Share

    Buy property with friends or family with a Property Share Loan - CommBank

    I've done a handful of these for clients - pretty simple from the bank side.
    But going in with your eye's wide open is critical - get advise.
    With CBA it's a requirement that you get independant legal advise.
     
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  5. Brady

    Brady Well-Known Member

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  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Since you are both owners you both must be on the mortgage. The only way around this is for you to guarantee each other's loans. This is what happens with the CBA product- guaranteeing a loan is essentially the same as taking a loan. There is one advantage however and that is if you default. If you friend defaults he will incur a bad credit report initially and you won't (no straight away anyway). This may give you the opportunity to find a lender and buy him out. If you were both joint borrowers you would both have a bad credit hit and that would make it hard for you to buy him out.

    Many banks offer this but CBA actively market it via a product.
     
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  7. John123

    John123 New Member

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    But if I have to 'guarantee' their loan won't I have to declare that when I apply for another loan?Assuming it's not with AMP or St George as @Jamie Moore said?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes
     
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  9. John123

    John123 New Member

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    So the main benefit of going down the Commonwealth path seems to be, separate loans so we can manage them separately and if my friend defaults I won't get hit with a bad credit straight away?
     
  10. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    With the CBA loan you're still guaranteeing the loan, so your risk is the same in the event of default. You'll still have to pay the debt. But you may be right regarding the trashed credit file if your friend defaults, not sure if you'd be affected in terms of credit rating.
     
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  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Thats it!
     
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  12. Brady

    Brady Well-Known Member

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    If you do the CBA Property Share - for further applications going forward with CBA you won't have to take into account the guarantee's commitments. As in their loan wont effect your serviceabilty as you will only need to take the repayments you're responsible for. Not sure how this works with other banks.
     
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  13. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    There are a couple of exceptions to this. AMP & St George.
     
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  14. John123

    John123 New Member

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    Thanks so much all of you, I think it might be time to go back to the drawing board for me. I think buying together is more hassle than it's worth
     
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  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It can be, but it can also be a way to get into property faster.
     
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  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    For CBA to remove the Joint and Several Liability, they dont need the loan to be under the Property share structure.

    They just require you to be an existing CBA credit client.

    The Joint and several loan can then be with any lender

    ta

    rolf
     
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  17. Brady

    Brady Well-Known Member

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    Care to expand on this @Rolf Latham?
     
  18. neK

    neK Well-Known Member

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    Is that the Common Debt Reducer policy?
     
  19. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yes
     
  20. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Yea thats what St George call it.