Home Guarantee Scheme: 5 tips for buying property with friends or family
Make sure you have an exit strategy in place, one property expert has warned.
Friends, siblings and other family members will soon be able to team up to buy a home with the government’s help, following changes to the Home Guarantee Scheme.
From July 1, the scheme will be expanded to cover these kinds of relationships. Previously, it only covered singles and married or de facto couples.
That means friends and family will be able to buy a property with a deposit of as little as 5 per cent. The government guarantees up to 15 per cent of the loan, so the buyers can avoid paying expensive lenders mortgage insurance.
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If you’re considering buying a home with a friend or family member, what do you actually need to think about before taking the plunge? Property expert and co-founder of Wealthi Domenic Nesci shared his top tips.
1. Communication and compatibility
“It is essential to discuss your goals and expectations, responsibilities, and financial commitments from the outset,” Nesci, author of You Won’t F*ck It Up: Buying property is easier than you think, said.
This includes making sure you are both on the same page, regarding the property’s purchase, as well as long-term plans for the property.
“It is also essential to ensure that you can work and live together with minimal friction and conflict, or at least have a plan to navigate it when it comes around,” he said.
2. Financial stability and responsibility
Consider your financial position now - including whether you can afford the deposit, ongoing expenses and any unexpected costs - as well as in the future.
“It is crucial to be up front about any potential financial issues or concerns to avoid any misunderstandings down the line,” Nesci said.
“Property is a long-term investment and things will inevitably change. People have babies, move countries, and change jobs. Consider all the factors and how this impacts your financial stability and responsibilities.”
3. Legal agreements
It’s also important to have legal agreements in place to protect everyone’s best interests.
“Ensure you have a legally binding agreement that details each person’s rights and obligations, how the property will be owned, managed, and maintained, and how any profits or losses will be distributed,” Nesci said.
It’s also important to consider any risks and consequences, such as what happens if one person wants to sell their share of the property or cannot make their repayments.
4. Choosing a property
In terms of the actual property, Nesci said you would need to choose one everyone agreed on and one that met everyone’s requirements.
From an investment perspective, you would also need to consider factors like the area’s demographics, rental demand and growth potential.
“It is all well and good that you agree to buy a property together but different types of property perform differently and will have varying levels of pain associated with it,” Nesci said.
“Make sure you are all on board with the strategy and the outcome that you want to achieve.”
5. Exit strategy
Lastly, have an exit strategy in place. That includes considering what you will do if someone wants to sell their share, and having a plan for the property’s sale or rental if you decide to part ways.
“Things happen in life and, when one of these big life decisions pops up, you need to be ready for that conversation,” Nesci said.
“Be clear on when and how you will exit the property up front so you avoid heartache later.”
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