17 Jan 2012
In my last post I discussed the option of buying a property with multiple owners. While this can work great for some people, the situation can also have its drawbacks.
The hardest part when buying as a group is making sure all parties are always kept satisfied. There is the potential for a lot of problems with joint property ownership and that is why it is wise to discuss problems early, and have solutions ready (and in writing).
All arrangements should be well defined in contracts and all parties need to be aware of the legal and financial obligations that they have with one another. It is often a good idea to specify in your contract that you hold a “tenancy in common”. This way if one of the owners passes away, their share will be inherited by someone chosen in their will and not the other owner. If for example you are husband and wife though, then this may not be so important.
You need to remember in joint ownership that if one party defaults on the loan, you could be made liable by the bank for their share, and the bank can exercise its right to sell the property if payments aren’t made.
Another issue to consider is whether or not you want to buy another property in the future. Even though you are sharing ownership, when a bank looks at your liabilities for a new loan they will take into consideration your entire mortgage, not just your share of it. So you may be restricted when you want to borrow money again.
A couple of other things to keep in mind are what would happen if one of you wanted to sell the property and the other didn’t? If you live together what if one wants to move out and rent the home but the other doesn’t?
Buying as a group can have its rewards though, and with rising house prices it may be the only way for some to realistically get into the property market. Just make sure you choose a person you can trust and someone who has the same long term goals as you. Also make sure the other parties involved are financially capable of making up their share of the property repayments.