{"id":20542,"date":"2018-03-12T01:00:45","date_gmt":"2018-03-11T14:00:45","guid":{"rendered":"https:\/\/www.realestatetalk.com.au\/?p=20542"},"modified":"2018-03-12T01:00:45","modified_gmt":"2018-03-11T14:00:45","slug":"buying-property-with-friends-margaret-lomas","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/buying-property-with-friends-margaret-lomas\/","title":{"rendered":"Buying property with friends \u2013 Margaret Lomas"},"content":{"rendered":"

Buying a property with a friend or relation sounds like a good idea but Margaret Lomas<\/strong> talks about a few of the not so obvious problems that might arise.
\nTranscript:<\/strong>
\nKevin:<\/strong>\u00a0 I guess we all do struggle to get into property in whatever way we can, and sometimes it seems like a good idea to do it with a friend or a family member. But I guess you need to structure it properly and be aware of what you\u2019re getting into. I want to discuss this now with Margaret Lomas from Destiny Financial Solutions.
\nGood day, Margaret. How are you?
\nMargaret:<\/strong>\u00a0 I\u2019m good. How are you going?
\nKevin:<\/strong>\u00a0 I\u2019m fantastic, thank you. This is the first time we\u2019ve spoken this year, so Happy New Year to you.
\nMargaret:<\/strong>\u00a0 Same to you. What a great year it\u2019s going to be.
\nKevin:<\/strong>\u00a0 Well, I hope so, too. We\u2019re planning it, and I know you and I have a few ambitious plans that will unfold a little bit later in the year. But I\u2019m looking forward to working a lot closer with you, too, Margaret. Thank you.
\nMargaret:<\/strong>\u00a0 It\u2019s going to be great.
\nKevin:<\/strong>\u00a0 It will be fantastic. Margaret, just to answer that question \u2013 it\u2019s a question that I get asked from time to time or I see people do it \u2013 what should people be aware of if they\u2019re going to buy a property with a friend or relation?
\nMargaret:<\/strong>\u00a0 I completely understand that people get frustrated at not being able to get into the market, and it seems a wise idea at the outset, but generally, I\u2019ve found that a lot of problems can arise when you choose to buy a property with either a relative, so a brother or a cousin, or a friend. I\u2019ll quickly outline what those problems are from my perspective.
\nThe first thing is it\u2019s always great at the outset \u2013 you both agree, \u201cYes, this is what we\u2019re going to do\u201d \u2013 but circumstances can change for people as you go along. What happens if you buy a property with someone else, it\u2019s going along fine, but their circumstances change and they suddenly need to disinvest at a time that you\u2019re not ready to come out yet?
\nYour time horizons are very rarely exactly the same, and even if they are at the outset, they can very quickly change for someone else and cause a little bit of stress and anxiety when you can\u2019t get out when you want to.
\nThat\u2019s one of the problems, but there\u2019s a bigger one than that, and that is the fact that from the bank\u2019s perspective, even if you set up two separate loans, one each, on the same security property, the bank virtually is taking a guarantee from you and a guarantee from them guaranteeing each other\u2019s loan.
\nWhat that means is that if you go on and then want to buy a property on your own and continue your own investment portfolio, you may not be able to borrow the money because the bank considers that you\u2019re jointly and severally responsible to the entire debt. While they\u2019ll only accept half the rent as your income serviceability, they\u2019ll assume you owe the whole debt, and that can eat into your serviceability.
\nOf course, the last problem \u2013 there are many more, but the last major problem \u2013 is that if that property grows in value really well and you want to leverage against it, you can only leverage again with that other person, because they\u2019re tied up on the title with you and the equity is also theirs.
\nIf you do want to be able to leverage out of equity into more property and continue to build a big portfolio, you\u2019ll have to leave that one that you have with someone else out of the scenario. You can\u2019t leverage with them.
\nKevin:<\/strong>\u00a0 All of those problems occur no matter who you go into partnership with, but I guess it\u2019s made even worse if it\u2019s a friend or relation, because a great way to wreck a relationship is to go into any kind of partnership \u2013 unless it\u2019s very clearly documented at the start, Margaret.
\nMargaret:<\/strong>\u00a0 I think that\u2019s the point. The point is they\u2019re your friends now or they\u2019re your relatives now. If it\u2019s a friend, okay, you might have a falling out with them \u2013 and I\u2019ve seen many fallings out with friends over property. You might have a falling out with them. Well, that\u2019s fine because it was a friend and now they\u2019re no longer you\u2019re friend.
\nBut you don\u2019t want to fall out with your brother or your sister over it. You know what it\u2019s like. It\u2019s bad enough and once things start to get hot under the collar, you feel awkward, and you can\u2019t have very major fallings out over this \u2013 and I\u2019ve seen that happen.
\nThe best way to avoid it is to not do it at all. But the second way to avoid it if you\u2019re really determined to go into this with someone else is make sure that before you even begin, you draw up an agreement that covers exactly what you plan to happen if\u2026 And you have to think about all the ifs.
\nCome up with everything you can possibly think of: if someone dies, if someone gets sick, if someone changes their mind and wants to get married, if someone wants to get out before someone else. Really think about all the ifs and outline how you will deal with that if the time comes. Then sign off on that document. That document then definitely can outline for you what the future will be if any of those things happen.
\nKevin:<\/strong>\u00a0 Great advice. Always see a solicitor because they can foresee all those things that you won\u2019t. In that conversation with a solicitor, too, they can broach things with the partnership that you might not be able to do individually, Margaret.
\nMargaret:<\/strong>\u00a0 Absolutely. There could be a whole lot of things that you have to think about. You have to go as tenants in common, and understand that if you are tenants in common, the other party technically can sell their share to anyone who they like \u2013 with or without your permission \u2013 but you still need that tenants in common.
\nIf you\u2019re joint tenants and one of you dies, then your share automatically goes to the other party, and you might not want that to happen if it\u2019s a friend and you\u2019re married to someone else. You want your portion going to your spouse and you need a tenants in common arrangement to make that happen.
\nKevin:<\/strong>\u00a0 Very good advice from Margaret Lomas at Destiny Financial Solutions.
\nMargaret, thank you so much. I look forward to working with you this year, and thanks for your time this morning.
\nMargaret:<\/strong>\u00a0 Thank you for having me.<\/p>\n","protected":false},"excerpt":{"rendered":"

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