Ask Paul: Will buying a home with friends end in disaster?
Anssi has the chance to buy the Sydney home he loves, but only if he joins forces with friends. What could go wrong?
Reader question
I have lived in the same three-bedroom inner-Sydney house since 2020, and the household has functioned steadily with co-tenants.
The owners are now considering selling and have expressly invited me to make an offer before they commence a marketing campaign.
One of the two expected appraisal inspections has taken place.
My present individual borrowing capacity is limited, so I have started exploring whether a small group of trusted friends could pool resources to make ownership achievable.
I am already speaking with a mortgage broker and would obtain independent legal and financial advice before proceeding.
I came across your comments about buying property with friends and thought my situation might be one where your perspective would be particularly valuable.
My central question is: What would you regard as the most important financial and relationship risks to resolve before a group of friends considers purchasing a home together? - Anssi
Paul Clitheroe's response
Good question, Anssi. A shared purchase can enhance or destroy friendships. I am pleased you took the time to send me an email about this way of buying property.
It makes a lot of sense, but it must be done with care.
You have nailed the technical aspects of a shared purchase. Talking to a mortgage broker and then seeking independent advice before proceeding is the way to go.
But the most important issue here is not blowing up your friendships.
Before you see an independent adviser, you need to pull out the wisdom of Solomon and discuss with your friends exactly how this will work. I've seen a shared purchase work well, and it usually does until life changes.
It sounds like you would live in the property with your co-purchasing friends.
Obviously, you would sign an agreement involving mortgage repayments, costs and so on, and it is usually low stress until life gets in the way.
The list of life stuff is as long as your arm, but what happens if one of the owners loses a job, gets ill, moves for work, wants to buy their own place, or there's a friendship falling-out?
The obvious solution is a buyout, but will the rest of the group have the financial capacity to do this?
An adviser will most likely suggest 'majority rules' if it is necessary to sell the property, but this often leads to disappointment for those who don't want to sell.
I think the right answer is more complex than this when it involves friends.
I'd like you all to sit down together and discuss life and the changes it brings. I'd add this 'soft' conversation to your agreement as a reminder of why you bought together.
About all you can say with confidence is that people's lives always have and always will change.
So do your best to discuss this openly and take your conclusions to an adviser to document your thoughts, not just provide a standard template.
What to read next
- The pros and cons of buying property with friends
- Ask Paul: Should I buy a house with my adult children?
- Read this before you buy property or go into business with family
- Ask Paul: Should I buy a home with my mate?
- Friends With Money #22: Who owns the house? Joint tenancy vs tenants in common
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