High property values may be pricing some buyers out of the market but keeping it in the family by pooling resources with parents and siblings can offer a quick path to home ownership.
The idea of teaming up with family members to own a home may not be something you’ve considered, however there’s nothing new about multi-generation living. One in five Australians live in households comprising several generations, and while for some it’s motivated by cultural preferences, for others buying a home with family members could make good financial sense.
Pooled resources expands buying options
Pooling resources lets family members enjoy greater buying power than they would as an individual. That can mean an opportunity to buy in a better area, enjoy a better quality home, or simply have a real chance at getting started on the property ladder.
Pitching in with family members has plenty going for it on other levels. You know and trust your co-buyers – after all, these are people you can have open and honest conversations with about how it’s all going to work.
It may also be less likely that your co-buyers will have dodgy financial habits you’re unaware of, like hidden debts or a tendency for overspending. So everyone goes into the transaction with their eyes wide open.
That said, there are plenty of issues to iron out before the family heads off to ‘Open Home’ inspections. Let’s take a look at the main points to work out.
Will everyone live in the home?
The first critical aspect to consider is whether everyone will buy as an owner occupier or if some family members will own a slice of the place as an investment. This is important because investors need to maintain good records of how much money they tip into the property – both at the outset, and over time, in order to report accurate figures to the tax man.
Record keeping may not be so much of an issue if each buyer plans to live in the property. That’s because our homes are exempt from capital gains tax. Nonetheless, it pays to know who contributed what. This way, if the place is sold further down the track any profits on sale can be fairly distributed.
How is the property pie divided?
The next step is to work out everyone’s ownership stake. This will normally be based on how much cash each person chips in, but it’s worth discussing how regular expenses will be divvied up.
If mum and dad are contributing, say, half the purchase price, will they also be expected to pay 50 per cent of rates, insurance, maintenance and other costs? It’s important to iron out these issues at an early stage as money can be a divisive wedge, even in the closest knit families.
How will the property be held?
From here, the ownership structure needs to be decided. It’s not unusual for a property to be owned by more than one person, and two main options are available. A ‘joint tenants’ structure can be a suitable option for families buying together because if one co-owner dies the remaining owners automatically inherit their share equally.
An alternative is to own the property as ‘tenants in common’. Here, each owner has a defined stake in the property typically based on the proportion of their funds they bought to the table – for example, 50 per cent or 25 percent. The ownership share doesn’t have to be the same for each co-buyer, and unless there’s an ownership agreement stating otherwise, each tenant in common can sell their stake to someone else (a potentially handy exit strategy) or bequeath their share to another person (useful if one owner gets married or has children further down the track).
A good way to know the right ownership structure for your family is by speaking with a solicitor.
Putting it all in writing
With some basic ground rules ironed out, it is a good idea to have a formal co-ownership agreement drafted by a solicitor. Yes, this will add to the cost of the property purchase but it can be money well spent. An ownership agreement establishes clear guidelines for a variety of ‘what ifs?’ including what happens if one family member wants to bail out of the arrangement, or if a co-owner suddenly finds themselves unable to cover the loan repayments.
Know your buying power
Before the family launches into conversations about what sort of property to buy and the preferred location, it’s important to determine how the purchase will be funded.
Each co-buyer may know how much they can afford to contribute. But for a clear idea of your collective borrowing power it’s worth speaking with your local Aussie broker. Or check out Aussie’s Borrowing Calculator for a broad idea of how much you can borrow as a group.
Choosing the right loan
Deciding the right loan structure is just as important as selecting the right property. It may be possible to take out a single loan with multiple borrowers though some lenders offer ‘property share’ loans, allowing individual owners to take out their own loan in their own name to finance their stake of the property. This is an area where it pays to speak with your Aussie broker to discover what’s available, and what works for your family.
Weighing up the pros and cons
Amid the excitement of planning a property purchase as a family, it pays to weigh up the positives and negatives to be sure you’re making the right move.
Multi-generation living can offer real benefits. Younger family members can help care for ageing parents, grandparents can help with childcare, and everyone saves on travel costs to visit family members. However, sharing a front door can test tempers, especially when money is added to the mix.
If you think it can work, keeping it in the family can be a smart way for everyone to share a home that could otherwise be out of everyone’s reach. The key is to speak with your Aussie broker for expert mortgage advice on how to make it happen.
You may also be interested in Dear John – what should I know about buying property with a friend?, Chipping in: things to consider when buying a property with mates and Is it time to think outside the box to get on the property ladder?