If you are looking to buy a home but cannot afford to make it happen on your own, you will be happy to know that up to four people can be registered as legal co-owners of a property. Because of this, buying property with friends can be a smart and efficient way to enter the housing market while sharing financial responsibilities. In this article, we will explore the benefits of buying property with friends, how the process works, and things you need to consider before completing the purchase.
Making sure you have an agreement in place
Before you move into your new home, it is essential to have a solid agreement in place. This is called a deed of trust. Without proper planning and communication, what should be an exciting venture can turn into a stressful experience if you do not have a written agreement.
It should outline each person’s rights and responsibilities so that everybody knows what they can expect and what is expected of them. A deed of trust also helps to make sure that everyone’s finances and payments are recognised and safeguarded.
Keeping a comprehensive inventory is also important, as it clearly outlines who bought what. It should include items such as televisions, kitchen appliances, and furniture so that possessions are split fairly if you decide to sell further down the line.
Decide on the type of ownership
Your solicitor can advise on the pro’s and cons of the different options available to you. A Joint Tenant Agreement is where each party has equal ownership of the property and should one partner die, the property will legally pass to the other partner, regardless of what is stated in the deceased’s will. A Tenants in Common Agreement will specify how much of the property each party owns and in the event of a death, their share in the property will go to the person specified in their will.
Getting your finances in order
One of the first steps to getting your finances in order when buying property with friends is to establish a budget. You should sit down with your friends and assess your individual financial situations to determine how much you can afford to put towards the deposit, monthly mortgage payments, and utility costs.
Opening a joint bank account is a smart move when buying property with friends, as you can deposit your individual contributions in one safe place. This allows for transparency and keeps track of each person’s financial commitment.
You and your friends will need to secure a joint mortgage, so it is crucial to thoroughly research and compare mortgage options to find the best terms and interest rates. As this will make you financially associated with your friends, their credit history could be taken into account when applying for credit, making it important to ensure everything is in order.
Things to consider
As exciting as it is to buy a new property with your friends, there are some risks and challenges that need to be considered.
Property search: When searching for a property together, each person may have differing goals and expectations. Some may view it as a short-term option, while others view it as a future home. It is therefore essential to align your goals from the beginning and have a clear plan in place.
Financial responsibility: Sharing financial responsibilities is one of the greatest challenges when buying property with friends, as splitting the purchase price, mortgage payments, and ongoing expenses can lead to disagreements and strain the friendship if a strong agreement is not in place or not followed.
Decision-making: When multiple people are involved in decision-making, conflicts can arise. Implementing a system for decision-making, such as a voting process or appointing a spokesperson, can help avoid conflicts and ensure everyone’s voices are heard.
Moving out: When the time comes when one or all parties are looking to move out, it can be difficult to decide your next steps. Because of this, it is important to discuss and establish a plan for potential future scenarios, potentially even pre-negotiating a buyout option. Having a clear exit strategy outlined in the initial agreement can prevent disputes and maintain a smooth transition.
Set some house rules
A friendship can be strained if there are disagreements over smoking, housework, pets or overnight guests. Discuss and agree in advance any ‘house rules’ which will impact on day to day living, you may find out that your friend has animal fur allergies which could put paid to your long-coveted plans of owning a cat or dog. Draw up a list of who owns what, it will save confusion when you come to move on. Make sure you keep it up to date as your house evolves into a home and you invest in new sofas and rugs.
