Getting into the property market can be challenging if you have a small deposit. But have you ever thought about buying an investment property with friends or family?
Property share with friends or family
Some of the major lenders have recognised that some property buyers do not have enough deposit to buy a home of their own. Instead of having to pay Lender’s Mortgage Insurance, property share is a great way to get into the property market. Some lenders are offering property share products that allow you to buy a property with someone else, but keep your finances separate.
You can use a Property Share loan to buy holiday homes or investment properties. First home buyers can use it to purchase a property with siblings or friends. Parents can use it to help their children – potentially using the equity in their own homes for the deposit.
How does it work?
The property being purchase is used as security for the loans
Individuals purchase the property as tenants in common based on the appropriate split (eg you could buy it 50/50 or 30/70 – it all depends on your needs and the deposit that you have)
If one party defaults on the loan, it does not affect the credit history of the other party
There is one loan for each person buying into the property
You can structure your own loan to suit your requirements. For example you can have the usual features including variable/fixed interest rate, with offset account or without, Principle and Interest or interest only…so the loan can be very flexible.
Case study – Leanne and Laura buy an investment property together
Leanne and Laura are long term housemates and have found a great investment property near where they live. They want to buy the property together, but wish to keep their finances separate.
The friends take out a Property Share finance loan. Their property is valued at $500,000 and the total loan is $400,000. They purchase the property as tenants in common, owning 50% each.
However, they each have a different deposit amount, so:
Leanne takes out a loan for $230,000 as she has a lower deposit
Laura takes out a loan for $170,000 as she has a higher deposit
Each is only responsible for their own loan, not the total debt as would be the case traditionally.
We recommend that you seek legal advice regarding your Wills and Powers Of Attorney to ensure that you will not be affected if one party wants to sell and what happens to the property upon death.