Buying property with friends: How do you save the relationship

Considering buying a house or investment with family or friends? With the costs involved, home ownership can feel like the impossible dream.

Pooling your dollars with parents, siblings or friends to get a foothold in the housing market can allow you to split purchase costs and spread the repayment load. There may be financial advantages. The downside? Financial commitments are renowned for placing strain on the most robust of ties.

How do you reap the upside of property co-ownership without ruining the relationship?

1.    Plan and prepare

Before you commence a conversation with potential co-owners it’s important to have a clear picture of what you want from this purchase and where you see yourself heading.

Where will you be in five years? What’s your vision for this property? Are you planning to settle in and stay? Put down roots? Or maybe it’s short term for you? A property kick start with travel and adventure still in your future?

Other questions to ask yourself:

  • Money - Do you anticipate financial security? For how long? Might your income increase? Decrease? How will you handle any changes?
  • Single or partnered? - Will your relationship status remain the same? If you anticipate change, what might that mean for your property and living arrangements?
  • What about location? Is the property somewhere you see yourself long term?
  • The property itself – What are your requirements? Size? Facilities? Outdoor space? Parking? What are you ‘nice-to-haves’ and what’s non-negotiable for you?

The first step in any important decision is to have a clear plan or strategy for the future. Flesh it out as much as you can and write everything down. If your goals align with the goals of your co-owners from the outset you set yourself up for a smoother relationship.

2.    Establish expectations

Legal, financial and property experts can assist with the nuts and bolts of planning your property purchase but how do you negotiate your ‘psychological contract’ with family or friends?

In every relationship there are unstated expectations. Children hope their parents might help them out if money gets tight. Friends may forgive a small transgression here and there. When there is little to lose unspoken expectations are easily managed with love, give and take.

Raise the stakes though and it’s human nature to protect our own patch. Conflict arises when emotion is heightened and expectations are unclear.

Before making the financial and emotional commitment of co-ownership it’s vital that you discuss the relationship and make assumptions explicit upfront.

Some questions to ask include:

Do we have the same goals and timeframe in mind for this investment? What do we do if someone can’t make a mortgage payment? How will we handle it if someone wants out? Have we agreed on living arrangements? Can a co-owner approve a new tenant? Who organises repairs? How are they funded? How will we resolve conflict?

Once you have the answers they can be formalised in a legal co-ownership agreement. This is advisable but not strictly necessary. You can keep the arrangement informal but documentation of your discussion and its outcomes could save a lot of heartache down the track.

3.    Keep talking

Conversation about your co-ownership relationship doesn’t end when you sign on the dotted line. Regular discussion about what’s working and what’s not will lessen the likelihood of misunderstanding or major conflict erupting later on.

Schedule regular meetings to cover the key topics in your (formal or informal) co-ownership agreement. Ask plenty of questions. Is each party still happy with arrangements? Does anyone foresee change? Are there terms that need to be renegotiated? Any sticky issues?

Ensure that everyone is listened to - and heard. Don’t assume that you know the answers, even if they’ve never changed in the past. If communication is regular, open and respectful uncomfortable topics or concerns can be raised with little risk and an opportunity to clear them up before they become critical.

4.    Resolve conflict early

If tensions rise and arguments do flare up it helps to address them early before they have a chance to fester. Formalise a plan for managing conflict that is incorporated into your co-ownership agreement. Decide as a group that you will listen to concerns and negotiate as soon as they arise.

When we’re frustrated our ability to think clearly and solve problems diminishes. Ask yourself, ‘Is the issue worth fighting over? Is there another way to resolve it?’

Other points to consider:

  • Try to separate the problem from the person
  • Cool off first if you feel too angry to talk
  • Remember that your aim is to resolve the conflict, not win the argument
  • Define the problem and stick to the topic
  • Try to find points of common ground
  • Check that you understand each other by asking questions
  • Resist the urge to bring up other unrelated issues
  • Remember that not all parties are obliged to agree on everything.

If you can’t find a resolution, you may wish to seek the help of a professional mediator. The upsides of property co-ownership are lost if you allow quibbles to ruin your relationships.

Guest blogger Ellen Jackson from Potential Psychology is a specialist in how you perform at your best. She writes across the internet about human behaviour and how to do it well. When she’s not at the laptop she’s talking to people at work about great people management and how to be resilient.

MasterCard Prepaid Management Services Australia Pty Limited (ABN 47 145 452 044, AFSL 386 837) arranges for the issue of the Multi-currency Cash Passport in conjunction with the issuer, Heritage Bank Ltd (ABN 32 087 652 024, AFSL 240 984). You should consider the Product Disclosure Statement for the relevant Cash Passport available at www.cashpassport.com.au before deciding to acquire the product. MasterCard and the MasterCard Brand Mark are registered trademarks of MasterCard International Incorporated.

--

The information provided to you is general and may not be appropriate for you. Conditions, criteria and fees apply to products. Please consider the Guide to Heritage Deposit Products or the Guide to Heritage Credit Card Products (available in-branch, by phoning 13 14 22 or at www.heritage.com.au) before you decide whether a product is right for you.

* Home loan comparison rate based on a $150,000 loan over 25 years.  Fixed loan comparison rate applies only for loans with an LVR of 80% or less and a loan amount of $150,000 to $249,999.  WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Interest rates are on a per annum basis. Rates are correct as stated and subject to change without notice. Rates shown are for new loans and do not apply to switches or internal refinances.

Home Advantage Variable rates include discounts shown from the Standard Variable rate. Home Advantage Living Equity rates include discounts from the Living Equity rate. Discounts are based on total lending in the package. Discount Variable LVR rates are for new lending and include discounts from the Discount Variable Loan Rate.  Discounts are not available in conjunction with any other interest rate discount or special offer. All fixed rates are fixed for the period stated and revert to the variable rate applying at expiration of the fixed term. To approved applicants only. Conditions, criteria and fees apply.

Loan to Value Ratio (LVR) is the loan amount divided by the value of your security property (determined by Heritage Bank at assessment), multiplied by 100. Owner Occupied loans have a maximum LVR of 95%, Investment loans have a maximum LVR of 80% and Living Equity has a maximum LVR of 80%. Heritage is not accepting any new investment applications until further notice.

This advice has been prepared without taking into account your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs.

Generate a personalised Key Fact Sheet based on your loan amount, term and repayments. This tool is provided to help you compare home loans from Heritage with other financial institutions.

The information provided is intended as general information only. Blogs have been prepared without taking into account your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs. You should consider obtaining personal investment, taxation and/or legal advice before making any decision.  Please consider the Guide to Heritage Deposit Products and Guide to Heritage Credit Card Products (available in-branch, or at www.heritage.com.au) before you decide whether a product is right for you. All loans and credit cards are subject to application and approval. Conditions, criteria and fees apply and are subject to change without notice.