Alternative homeownership: Buying with family or friends

• What you need to know if buying with friends or family
• The pros and cons of buying a property with friends or family
• The initial conversation you’ll have with friends or family on buying together
• Consulting a lawyer for your property sharing agreement
• What lenders think of buying a home in a group

It may be that you don't fit the profile for the above co-owning options or they just don’t feel right but you’re keen to share the load in some way. So how about buying with some mates or siblings that you trust and have ideally lived with, so you know you are compatible?

Pros:

• When you go in with others, you’re buying with at least two incomes, at least two KiwiSaver accounts and you’re eligible for two first home loans.
• The beauty of buying with friends or family is not only do you share the initial costs of buying a home but you share the ongoing costs of owning a property, things like insurance, council rates, maintenance expenses and so on which are pretty substantial.

Cons:

• For as long as you have a mortgage together, your credit record will be linked with the co-owners.
• If one of the parties can’t pay the mortgage payments you’ll be liable for completing the mortgage payments.
• It will affect your ability to buy other properties, the lender will only consider your proportion of the house as your asset and yet the whole mortgage is a liability.

Before you begin the process it is wise to discuss some initial questions with your chosen co-buying friends to see if this is a goer:

• Where do we want to live?
• What kind of house do we want to buy?
• Are we going to allow pets?
• How long do we anticipate owning together?
• What if someone needs to work in another city, would we get a flatmate in?
• Does everyone want to put the same amount of money in or will that vary?

When buying with friends or family, your lawyer – and you’ll need a lawyer no matter how long you’ve known each other and trust each other – will typically advise structuring it on a “tenancy in common” basis. This gives each party a share in the property and if they die, that share of the property goes into their estate.

The alternative is a joint tenancy, which is popular with couples. It gives each party an equal stake in the property and if one person dies, their share of the property goes to the other person.

If your initial conversations all go well, you’ll then enter into some serious detail with your friends and get legal help to draw up a document of a co-ownership property agreement that lays out how you’re going to handle the challenges that might come your way. Your lender will want to see this to make sure you know what you’re going into, so there’s no avoiding it.

Most property sharing agreements will make sure to:

• Lay out the parties’ contributions to the property, i.e., who is paying what percentage of the mortgage
• State how payment for council rates, insurance, repairs and maintenance will be shared
• State who will live at the property
• State how the maintenance and improvement costs of the property will be paid
• State what happens when one party wants to sell
• State if someone wants to sell their share who pays for the property’s valuation
• State how disputes will be resolved
• State what to do if you want to sell and prices have fallen
• State how to value the property if someone wants to exit
• State that the remaining owners get first dibs on your share of the place if you decide to sell
• State what happens if someone loses their job and can’t make their mortgage payments (you may only own half the house but you’re liable for the whole mortgage)
• State how to keep the property out of relationship property if that’s the intention
• State the rules if someone’s partner moves in
• Discuss what happens if someone needs to move town for a job and wants to install a flatmate in their place

Not all banks are open to lending to a group of friends. They see it as a higher risk because there’s a halfway decent chance that the co-owners might fall out at some point – new relationships might muddy the water between friends, or someone might want to sell their share suddenly if life direction changes, for example.

Your mortgage broker will know which banks are more open to it and they’ll be able to present your group to lenders in the best possible light – banks including BNZ, ASB and especially Kiwibank include it in their marketing to first home buyers. Kiwibank cautions that everyone needs to be on the same page, trust one another, and be comfortable that their personal information will be shared with each other.