Property prices in Australia are still rising much faster than the average wage, and that means affordability issues aren’t going to subside anywhere in the near future. In addition to this, restrictions on lending regulations mean getting a loan is now harder than ever.

With the rush to buy property as high as ever, a growing number of Generation Y’s are getting together with friends to get their feet on the property sooner – a trend known as property co-ownership.

However, before you open Messenger and drop your best friends a message, be aware – it comes with its risks. Read on to learn more about the pros and cons of buying property with friends and family, as well as how you can work to avoid things turning sour.

The Benefits of Property Co-ownership

Property co-ownership comes with a number of key benefits which are attracting growing numbers of Generation Y’s:

  • The ability to pool money and buy a larger property, either to live in together or as an investment property
  • You can borrow a larger sum of money than you would have been able to on your own
  • It cuts down the amount you need to save to buy a property
  • It increases the options on the types of property you can buy
  • It reduces the cost of bills, maintenance and transactions

The Risks of Property Co-ownership

However, property co-ownership doesn’t come without its risks – many of which budding property buyers are unaware of:

  • It could affect your future buying power, as lenders assess the entire loan as your responsibility, not just your portion
  • One owner could want to sell up when the other doesn’t
  • One owner isn’t sharing ongoing costs, which could breed tension
  • Joint repayment responsibilities can cause tension if one owner defaults on the loan
  • Social situations change – relationships end, and friendships break down

How You Can Reduce the Risks of Co-ownership

Before moving forward with any kind of co-ownership agreement, it’s essential that you speak with your solicitor and accountant, as everyone’s individual situation is different.

When you’re figuring out the legalities, consider your worst-case scenario and create a plan to tackle it. You’re better to have a plan and not need it, than need a plan and not have it.

1) Carefully Select Your Partner

Buying a property is a huge decision, so you need to go into it with someone who you can trust, as well as someone who shares your views.

2) Discuss Your Financial Situation in Detail

You need to have a clear understanding of your friend’s situation to understand if they’re able to cover their end of the home loan and whether any financial problems might arise. Any financial decisions you make should be documented effectively.

3) Work Out an Exit Strategy

This one is crucial. If one of you becomes seriously ill, gets fired from a job, goes bankrupt or your relationship changes, you need to have an exit strategy to help you be prepared for the worst.

4) Have a Co-ownership Agreement Put Together by Your Solicitor

Agree everything in advance and get it drawn up by a solicitor to avoid any potential disagreements or arguments down the line. A co-ownership agreement should cover each and every issue you may face, as well as the rules and solutions you want to have in place.

Consider the worst-case scenarios you could experience, as well as how you’d resolve those issues. For example, if one of you wants to sell the property, the other has the right to first refusal to by their share. By planning ahead, you’ll help to avoid any potential issues later on and keep everything above-board.

The information and links provided on this website are for general information only and should not be taken as constituting professional advice. This information does not take into account the financial situation or particular needs of individual readers. Before making any decisions about matters discussed on this website, you should consider whether it is suitable for you in light of your own circumstances, and seek appropriate advice.