Should you buy property with a friend?

Buying property, especially as a first-time buyer, can be difficult – it’s a huge financial commitment, and one that is becoming less and less affordable as costs continue to climb.

With the average gross monthly income in South Africa estimated at a R16 470, according to the Stats SA Quarterly Employment Statistics December 2014, an average South African would qualify for a maximum bond of just under R540 000. If you’ve looked into the property market of late, you’ll know that doesn’t get you terribly far, which is why it should come as no surprise that joint mortgages are increasingly popular.

“It’s not difficult to buy a house with a friend these days,” says Tony Clarke, managing director of the Rawson Property Group. “Most banks are happy to consider as many as four applicants on a single bond, although more than that may get a little bit more complex.”

By joining forces, friends or family members can qualify for a much larger bond than they would have individually, giving them access to not just a property, but an investment that would otherwise have been out of financial reach.

“It’s really just another way of gearing an investment,” says Clarke. “If you get it right, it can be a very profitable endeavour.”

The benefits of a joint purchase aren’t limited to a larger bond and a larger investment, however. “By splitting the financial responsibility, buyers can often put down a larger deposit early on, decreasing their bond repayments,” says Clarke. “Sharing ongoing costs like insurance and maintenance makes day-to-day expenses a lot more affordable as well.”

So what are the downsides?

“There are always risks involved when you get into any kind of partnership,” says Clarke, “and it’s important to understand how the shared responsibility of a mortgage actually works.”

As far as the bank is concerned, all the owners of a property are responsible for the total bond amount, not just their share of it – regardless of any private agreement in place between them. That means if one party falls behind on payments, everyone is liable for the outstanding amount, and the bank can claim this from any of the other parties involved, if necessary. Likewise, if the property is sold for less than the outstanding bond amount, the bank can and will hold all parties responsible for the difference.

Although a private agreement doesn’t protect you from this particular kind of situation, Clarke says it is absolutely imperative to have a contract drawn up.

“You need to clearly outline how the bond will be paid, how ownership is apportioned, and what should happen in the event of death or early dissolution of the deal,” says Clarke. “A good lawyer will guide you through all the potential pitfalls, and help minimise the risk by drawing up a detailed agreement.

“Trust is still a huge component in the success of joint property ownership,” says Clarke, “so be absolutely sure you know who you’re dealing with before you sign anything.”

Clarke advises co-owners to consider opening a joint bank account from which all household and bond expenses can be paid. That way you know exactly what has been spent and where the money has come from – it’s much easier than trying to reconcile payments from various personal accounts.

“All things considered, co-ownership can be a very attractive option for first time buyers and investors alike. The potential benefits are huge, but the risks are very real as well. Managing risk is a part of life, so always have an exit strategy for worst-case scenarios, but if you lay the groundwork right, co-ownership can be a great way to get onto the property owning ladder,” Clarke says.

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