By Kelly Vieira
Buying a property is one of the biggest investments you will ever make. It takes years of saving before most of us can even consider taking the plunge. There is a shortcut, but it does have its risks: investing with a partner.
Instead of saving up for four years to have a decent deposit, you can do it in two. Instead of having to pay $2,000 a month in mortgage repayments, you pay $1,000. Sounds like a great deal, right? Wrong. And here are just a few reasons why:
If you buy a plot of land to build on or a property in development, you may be eligible for the First Home Buyer’s Grant. If you’re buying a property with your partner, only one of you will be able to claim that grant (i.e. you can’t both claim and get double the grant money), but owning the property means that both of you will be eligible to get the grant afterwards. In other words, you both lose your right to accessing the grant in future (because neither of you will be first home buyers after purchasing this property together), despite only one of you getting this payout.
Inversely, if you haven’t bought any property before but your partner has, that can affect your right to claim the bonus. You may only be allowed to claim a certain percentage of the bonus, if at all, depending on which state you buy property in and on any other factors affecting your payout.
Forget about claiming the First Home Buyer’s grant if you can’t even get a good loan. If you’re going to own a mortgage with someone else, you’re going to have to take an equal amount of responsibility. Banks will know this and evaluate your loan application accordingly.
Even if you do get the loan, keep in mind that you’ll both be liable for the mortgage. This means that if one of you defaults, the other will have to take on the full weight of the repayments. This is a serious concern and you should be prepared for it, even if your partner is financially stable. Who knows when their situation will change, thus changing yours in the process?
It would be folly to jump into this without a safety net. You may have known each other for years and can’t picture the future without this other person, but falling-out is something that happens completely out of the blue.
The best form of protection to safeguard against negative repercussions in this situation is to have a legally binding agreement that outlines contingency plans if the worst case scenarios eventuate. This goes further than the two of you just sitting down one day and writing up your own contracts: you’ll need a lawyer to execute the fine print for cases like one of you defaulting on payments and who carries the liability in that instance, divvying up payments for insurance, utility, rates and strata costs (if applicable), and so much more.
The cost of drafting that legal document? Depending on the lawyer you go with and how complex your situation is, you could be paying in excess of $5,000! If you go it alone, this is a step you can bypass entirely. You’ll pay more each month and have to front the deposit in full on your own, but $5,000 added onto the price of a mortgage that’s already incredibly sizeable can make a huge difference.
This may seem like a very minor point, but it can greatly impact your decision to buy property together.
Say you work a lot and your partner does too, although at different hours to you. You’ll want to spend what little time you have together, without clashing schedules, in happy situations. You won’t want to spend it arguing about who should pay more for the insurance or how much each person should be contributing to the repayments.
There will always be things to talk about in terms of property ownership and the financial issues that arise with it – topics of conversation that can severely detract from the relationship.
Last, but not least, we get down to the relationship itself. Arguments over repayments, who gets what share, one wants to sell, the other wants to rent it out … disagreements over joint financial ventures can tug and tear at a relationship until it completely unravels.
If that does happen, you’ll be facing legal disputes (remember that agreement you had your lawyer draft up – better hope it’s bulletproof!) that can last years. Potentially, you could walk away from this fiasco with significant debt and with a ruined relationship.
Investing with a partner can work out great. If you put the time and effort into the research beforehand, produce an iron clad agreement and go into this with a level-headed and financially well off and professionally stable partner, co-owning property could be a wonderfully lucrative investment for you both. Conversely, you could end up losing a friend/partner and gaining a lot of debt in the process.
Kelly Vieira works as a writer for a Home Loan comparison service website Finder.com.au. If you’ve got any questions, contact her @_kellycvieira or on her LinkedIn profile – she’d love to hear your horror/success stories about investing in property with a partner.
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