Buying Property with a Friend? Here’s How to Do It Lawfully
If you have been renting a house or apartment with a friend and you get along well, you might have wondered about joining forces to co-own a property with them. That sounds like a solid idea, but entering into a co-ownership agreement requires carefully evaluating the distribution of costs and ownership. You must also consider the legal aspect and choose the ownership arrangement that best suits your needs and protects your rights. So, today, let’s tackle this possibility and explore whether buying a property with a friend is wise and how you can pull it off lawfully.
Can Two Friends Buy a House Together?
Yes. Two friends can buy a house together in Australia. This is typically done through a co-ownership arrangement where both parties share the costs and ownership of the property. It’s vital to decide on the ownership type that suits both parties—whether as joint tenants or tenants in common. Often used by husbands and wives or de facto couples, joint tenants can be selected by friends who want equal shares and rights to the entire property. Alternatively, tenants in common can hold unequal shares and have individual rights to their portion of the property.
Benefits of Buying a Residential Property with a Friend
Buying a property with a friend has several advantages:
Affordability: Pooling resources can make it easier and faster to afford a property. Since you’re joining forces, you can probably pay a larger deposit for a home loan and avoid paying costly Lenders’ Mortgage Insurance (LMI).
Shared Costs: Owning a house can be costly. But when you own a property with a friend, ongoing expenses such as mortgage repayments, council rates, and maintenance costs are divided, making them more manageable.
Investment Potential: Co-buying can be a stepping stone to further property investments. It might allow you to enter the market sooner than if you were buying alone.
Legal Risks of Buying a House with a Friend
While there are benefits to buying a residential property with a friend, there are also significant risks:
Financial Discrepancies: Differences in financial stability can lead to legal disputes, especially if one party fails to pay their part of the mortgage.
Change in Circumstances: Changes in one owner’s life—such as marriage, divorce, or relocation—are inevitable and can complicate the co-ownership arrangement.
Disagreements: Conflicts can arise over property decisions, including selling or renovating the property. That’s especially true if you fail to get the specifics of the agreement in writing.
Do You Need to Split 50/50 to Co-own a Property in Australia?
Friends do not need to split ownership 50/50 to co-own a property in Australia. You can tailor co-ownership arrangements to suit the needs and financial contributions of the parties involved. When you and your friend decide to be tenants in common, you can own a property in unequal shares, such as a 40/60 split, depending on your agreement and financial contributions to the purchase. This flexibility allows for a more personalised approach to property ownership or investment among friends.
How Will It Affect You If Your Friend Fails to Pay Their Part of the Mortgage?
If your friend ends up not paying their part of the mortgage, the consequences can be substantial and multifaceted. Here’s a breakdown of the potential impacts:
Financial Burden
The primary and most immediate impact would be the increased financial burden on you. Mortgages are typically significant monthly expenses, and covering the entire payment on your own could strain your budget. If you can’t make the full mortgage payment, you risk falling behind, which can lead to penalties, increased interest rates, and, eventually, a legal process called ‘mortgagee in possession.’
Credit Score Impact
Your credit score could suffer if your friend fails to contribute to the mortgage payments and you’re unable to cover the shortfall. Mortgage payments are reported to credit bureaus, and late or missed payments can negatively impact your credit score. A lower credit score can make it more difficult and expensive to borrow money in the future, affecting your ability to get loans or credit cards.
Legal and Ownership Complications
If your friend is a co-owner of the property, their failure to contribute to the mortgage doesn’t relieve them of ownership rights. This situation can lead to legal complications, especially if you sell the property or plan to buy out your friend. Resolving these issues might require costly and lengthy legal intervention.
Relationship Strain
Financial disputes are among the leading causes of strain in relationships. If your friend fails to pay their share of the mortgage, it could lead to resentment, trust issues, and potentially the end of the friendship. Navigating this situation delicately is crucial to preserving the relationship, but it may not always be possible.
More Questions to Consider Before Writing Up a Co-Ownership Agreement
Before entering into a co-ownership agreement, consider asking the following:
What is the financial contribution of each party?
How will profits or losses from the property be distributed?
What happens if one party wants to exit the co-ownership?
If you enter into a co-ownership agreement as a single person, what would happen if you settle down and buy your own house with your spouse?
What happens if you entered into a property co-ownership agreement while married and now need to liquidate your assets during a divorce?
How will decisions about the property be made and disputes resolved?
What are the long-term goals for the property?
How to Buy a House with a Friend Lawfully
Have you talked to your future co-owner and sorted out the potential issues? Now, it’s time to focus on pulling this move lawfully. To ensure a lawful property purchase and co-ownership experience, here are the steps you can take:
Decide on the Ownership Structure: Choose between joint tenants and tenants in common based on your relationship and financial goals.
Draft a Co-Ownership Agreement: This legally binding document should outline all terms of ownership, responsibilities, and what happens if the co-ownership needs to be dissolved.
Get Legal and Financial Advice: Consult with legal and financial professionals to understand all the possible implications of the property purchase before signing the dotted line with your friend.
Engage a Conveyancing Lawyer: A conveyancing lawyer will handle the legal paperwork, ensuring the property transfer is conducted smoothly and lawfully.
Why Do You Need a Conveyancing Lawyer When Buying a Property with a Friend?
A conveyancing lawyer is a huge help when buying a property, especially in a co-ownership arrangement. They provide essential legal advice on the purchase and the co-ownership structure. They review and manage all contracts to ensure your interests are protected. Moreover, they handle the property transfer from the seller to you & your co-owner, checking whether all legal requirements are met.
Summing It Up
Can you buy a house with a friend? It is a viable option that comes with both benefits and risks. But, when they understand and prepare for the legal implications through careful planning and the help of legal experts, friends can successfully navigate the complexities of co-ownership.
Feel free to contact us to learn more about co-owning a house or any property in Queensland. Our conveyancing lawyers on the Sunshine Coast will guide you every step of the way and protect your rights as you enter a co-ownership agreement.
Disclaimer: This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm, or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers take no responsibility for any use of the information provided in this article.
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