The pros and cons of buying with a friend

For the first time in over three years, the Consumer Price Index (CPI) has aligned with the Reserve Bank of Australia’s (RBA) target range, as reported by the Australian Bureau of Statistics (ABS) this week.

During the September 2024 quarter, CPI rose by 0.2%, bringing annual inflation down to 2.8%—a significant drop from 3.8% last quarter. This marks the first return to the RBA’s 2–3% target range since early 2021.

The ABS highlights that declines in electricity (-17.3%) and automotive fuel (-6.7%) were the main factors behind this inflation easing. What ever the case, this result is a significant development in the Reserve Bank’s fight against rampaging inflation.

In this week’s newsletter, we look at the pros and cons of buying property with a friend.

Buying a house with a friend can be a smart way to enter the property market, especially when saving for a deposit and being able to service a mortgage alone can be so challenging. But like every strategy, the benefits need to be balanced against the risks.

Benefits of Buying with a Friend

Increased Buying Power – Combining deposits can open up options for larger or more desirable properties.
Shared Costs – Splitting mortgage repayments, maintenance, and utility expenses makes monthly costs more manageable.
Equity Building – Co-owning allows both parties to build equity, potentially enabling faster growth toward future financial goals.
Mutual Support – Working together can ease the responsibilities of homeownership, creating a support system for both owners.

Risks to Consider

Changing Life Circumstances – If one person needs to sell or move, it impacts the other’s living arrangements and finances. To manage this, a co-ownership agreement is essential, outlining exit strategies, property use, and buyout procedures.
Financial Strain – If one party struggles to meet mortgage payments, it can affect both owners’ credit scores. Having clear financial expectations and an emergency plan can help mitigate potential issues.
Disagreements Over Property Management – Conflicts over renovations, upkeep, or general management can cause tension. Open communication and setting expectations from the start are key to avoiding disputes.
Long-term Alignment – Misalignment in future plans (e.g., investment goals, resale timing) may create friction. Discussing long-term intentions and goals before purchase can help ensure both parties are on the same page.

By weighing these pros and cons, and taking legal precautions, friends can make co-ownership work while navigating potential challenges effectively.

If you have clients who are considering this strategy, have them reach out to us for a discussion about it, including finance considerations.

Variable

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.

1 Year Fixed

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.