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When friendship becomes co-ownership: Is buying a house with others the right move for you?

An increasing number of people are considering co-ownership as an alternative path to get on the property ladder.

Investing in property or buying your first home is a significant milestone for many. While the traditional approach involves purchasing individually or with a romantic partner, an increasing number of people are considering co-ownership as an alternative path to get on the property ladder.

The arrangement can be done with your significant other, but also involves teaming up with a friend or group of friends, family, or even colleagues to share the cost, responsibilities and ideally, the joys of owning your own home.

So, where do you start?

Slice founder Amy Stevens says it’s best to begin with an open conversation with your friends or family members to ensure you’re all on the same page.

“To get there, it’s important to discuss who will be contributing what, how each of you will benefit and what you will do when it comes time to sell among other things.”

Once you agree on a plan, you’ll need to consider the type of property ownership arrangement you’re going to enter, with two different ways to own a home with others.

Joint tenancy, which is commonly used by couples, gives both parties an equal stake in the property. If one dies, their share goes to the other person. Tenancy in common gives each owner a distinct share in the property, which is divided however they request. If one person dies their share of the property goes to their estate.

“Tenancy in common through a Co-ownership Agreement is the most common structure when it comes to co-ownership with family or friends, as the share of property can be divided based on the size of each person’s deposit, and/or their contributions toward mortgage repayments.”

Stevens says a co-ownership agreement allows a group of buyers to tailor the way they want to own their home, and ensures the protection of both your investment and your relationships.

“When buying with a romantic partner, a Contracting Out Agreement (Prenup) is becoming more and more common, particularly where one partner is making more contributions or is getting support from a parent.”

There are some unique challenges and details to consider, so it’s essential that everyone involved has a good understanding of both the pros and cons before pushing go.

The Pros of Co-Ownership:

Financial Collaboration:

Co-ownership allows individuals to pool their financial resources. Sharing the burden of the down payment, legal expenses, due diligence reports and mortgage repayments can significantly reduce the financial strain on each co-owner not just when buying the house but also overtime.

Tailored mortgage repayments:

A home loan will be issued as one mortgage against the property but split into parts. This means you can structure your part of the loan in the way you would like – for instance, fixed or floating. This means each owner can pay back their portion at a different rate.

Increased Purchasing Power:

With multiple individuals contributing, co-ownership can give you access to a more extensive range of properties than a single buyer might afford.

Shared Responsibilities:

Co-ownership encourages shared responsibilities for property upkeep, maintenance, and other ongoing costs. This can lighten the load on each individual, and foster a sense of teamwork in maintaining the property.

Emotional Support: Sharing both the joys and challenges of owning a home with friends or family can provide emotional support throughout the journey.

The Cons of Co-Ownership:

Financial Risks:

While sharing financial responsibilities can be an advantage, it also comes with risks which is why it’s important to get a legal agreement.

You might only own part of the house, but you’ll be liable for the whole mortgage if one person can’t keep up with repayments.

Your credit record will be linked to your co-owners, which means any financial irresponsibility by another party could affect you.

Your ability to buy further properties can also be impacted. A bank will only consider your portion of the home as your asset, but the entire mortgage as a liability.

Decision-Making Challenges:

Disagreements among co-owners over property management, renovations, or even selling the property can pose challenges. Ask yourself “is our friendship strong enough to survive potentially tricky situations?”

Changing Circumstances:

Life is dynamic, and circumstances can change. A co-owner might decide to sell their share or face unforeseen life events that forces their hand, potentially disrupting the stability of the co-ownership arrangement.

Once you’ve assessed the pros and cons it’s a good idea to seek legal advice and draft a comprehensive “co-ownership” or “contracting out agreement”, to address potential disputes, outline each individual's rights, exit strategies and responsibilities when it comes to things like maintenance.

It’s also worth having a written agreement around issues like what happens if one person doesn’t want to live in the house, but the rest do, and how much insurance each person needs.

“It can be hard to have conversations like these which is why the Slice platform is so important. Slice acts as an objective third party, helping you through each step of the buying journey and linking you up with partner lawyers who provide their services for a fixed fee.” says Stevens.

“Whether you're buying with a parent, friend or even your partner, Slice Home Buyers Software is free to use and includes a decision tool that can help you with every step of the process. Some of the key considerations you’ll see includes how to split equity, manage repayments, maintenance, improvements, living arrangements and eventually how you’re going to divide profits when you sell”.

Stevens says these are documented, and then made into an agreement with Slice’s partner lawyers.

“What’s so great about these decisions is they not only prevent conflict when you come to sell, they also prevent conflict throughout the entire ownership period. While talking about your finances can be awkward, the best thing you can do is have these discussions upfront.

“If you don’t know how to bring this up we recommend checking out Slice’s podcast, and sharing an episode with your potential buying partner.”

Co-ownership of a property can be a rewarding venture, but requires careful planning, communication, and legal safeguards. Before embarking on the journey, individuals should thoroughly evaluate their relationships with potential co-owners, assess their financial stability, and seek professional advice to ensure a smooth and successful experience. To explore your options, or for more information head to www.slicetobuy.com

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