Guide to buying a property with friends

Where to start

If you’re buying a property with a friend, family member, or even someone you don’t know, with the purpose of investing together, you should always make sure you have the appropriate agreements set up in advance. This means having very open and frank discussions about what you all want to get out of the venture, how you plan to fund the investment, how long you plan to live together and what happens if one of you wants to sell their share in the future.

• You trust and like the people/person you are buying with
• You are comfortable with the terms of the co-habitation agreement you have drawn up
• You are open and honest with each other about areas of possible conflict or disagreement.

advantages of joint equity, co-buying or joint ownership

There are plenty of advantages of buying a property with friends, but the main one is that it reduces the individual financial burden that home-ownership can bring. Together you will be sharing the cost of:

• Your deposit (you won’t have to save as much in advance)
• Transaction costs (legal fees, stamp duty, survey costs)
• Mortgage payments (arrangement fees, monthly payments)
• Maintenance, decoration expenses and repairs
• Household bills (utilities, phone, council tax).

There are plenty of other advantages, too. Even though you may be buying with other people, you don’t necessarily have to live in the property itself. You can always rent out your room to a tenant who will cover some, or all, of your share of the mortgage repayments.

Don’t forget, too, that you are creating an investment for your own future. When you are all ready to sell the property, you may well make enough money to invest in your very own property.

disadvantages of buying with friends

Buying with friends can be a bureaucratic process and it is important that you keep adequate records and keep track of all payments made and any other documents relating to the property and any agreements made between the parties. You should also consider drawing up a will and any other legal documents to protect you and your investment.

Everyone involved in the transaction is responsible for the mortgage payments, so if one person defaults on payments, everyone is liable. Make sure you are all open and honest about any potential cash-flow problems that might impact on your meeting the collective mortgage repayments.

Should you wish to sell before the others are ready to, it may be your responsibility to make sure your share of the payments are covered in another way. This could mean you have to find a tenant to take your place in the property.

Other considerations

Think about setting up a joint bank account from which the mortgage payments will be drawn. You might also want to use this account to pay for any agreed, shared expenses. This will enable you all to keep track of payments and expenses more easily than if they were going in and out of separate personal accounts.

If you are all putting down separate deposits for your mortgage, you need to record who has contributed each amount. If they are not identical amounts, you will need to work out the proportion of the value of the property each deposit equates to and agree, should the property be sold, how the proceeds should be split.

It is best to have an inventory of individually owned items and shared items. Keep it up to date and make sure you all agree with its content. This should help in the event of a potential sale or split.

House rules are an important point of discussion. What are the rules regarding partners moving and guests/partners/boyfriends/girlfriends staying over? What about pets, smoking, the consequences of undesirable behaviour, and so on?

Another important area for discussion is what to do if one person wants to sell and the others do not. What happens if there is a non-resident co-owner? How do you arrange a tenancy? Be clear about how this situation will be dealt with and make sure you all get suitable guidance from your solicitor in advance.

It is important to remember that if there are any disputes, it is beneficial to both, or all parties to come to an agreeable compromise. It may mean someone moving out but retaining ownership, or it might be that all parties decide to sell. Whatever the circumstances, make sure you all know your rights and obligations in the partnership.

Joint mortgages

More and more lenders are offering joint mortgages, or mortgages designed specifically for co-owners, and there are an ever increasing number of products on the market. It is always a good idea to seek independent financial advice on what will work best for your set of circumstances.

Good luck!

Buying with friends can be a very successful way of getting onto the property ladder, however the pitfalls can be considerable if proper care is not taken to ensure that all parties are happy and agreements are water-tight. This requires open, honest communication about a myriad of small matters that, if not dealt with correctly, can quickly and easily escalate into much larger issues. The upside is an investment that increases in value as well as a home to live in and friends to enjoy it with.