Is it a good idea to put your finances and heads together when buying an investment property?
Getting together with a mate to buy property can be a great way to help you get a flying start on your investment strategy. With a bigger deposit and the potential to borrow more too, you can get the right property in the right area or buy sooner.
So let’s say you pool your resources into property. Then you find yourself wanting to buy a family home and you need to free up some funds, but your footloose and fancy-free friend doesn’t want to sell. What started as a convenient partnership could all come to a messy end – and at what cost to your friendship?
Treat it like a business
“Investing in property should be like running a business,” says Aussie broker Ross Le Quesne. “And that’s where friends investing together can work. If you’re both prepared to make the commitment – of time and money – to get the best outcome, then there are definitely benefits to a partnership as it can increase your borrowing and buying power.”
Shared knowledge and experience can also add value to the arrangement. “Perhaps one of you can spot a property with the potential to renovate for higher rental return or capital gain,” says Ross. “The other might be better at understanding property finance and can work together with a broker to come up with the right loan.”
Agree on your goals
If you’re buying any kind of property and sharing the commitment with someone else, it’s important to agree on your goals from the outset. Having a shared understanding of what you’re planning to achieve and how you’re going to make it happen can go a long way to avoiding conflict and problems in the future.
“Whether you’re buying an investment property on your own or with someone else, there are key questions you need to address,” says Ross. “What kind of property to buy, how much you can afford, and what type of loan you need. If you’re in a partnership, you need to agree on how long you’re planning to stay invested and what will happen if one of you wants to sell early. You wouldn’t set up a business together without getting legal and financial advice. So it’s worth doing the same for your investment partnership.”
So are there any special loans available for friends buying property together? According to Ross, there are some new loan products on the market that are suited to investment partners.
“Split loans are pretty common for joint investments in property. It’s basically one mortgage, shared across two loan accounts. Each borrower makes their own regular loan payments and can get ahead with extra repayments, if the conditions of the loan allow for that.”
“There’s also a property share product offering two separate loans on a single property – one in each owner’s name. It can be useful for keeping finances separate but you have to sign a guarantee for the other person’s loan. So at the end of the day you’re still sharing liability for all the finance secured on the property. Whatever loan you choose, it’s important to get independent financial advice on your property buying arrangement.”
Find out more about your investment choices and opportunities with the Aussie Property Investing Guide.
Thinking of buying an investment property with a friend? Share your experiences and ideas in the comments below.