When you co-buy a property, you enter into a partnership.P urchasing a home with someone else is an important decision. Whether you’re buying your first house with a friend or family member or purchasing a vacation home with another couple, it’s imperative to consider the implications of your joint purchase and who you are purchasing with. In the case of a primary residence you may well have to live with your co-buyer(s). Even if one or more of you are non-occupants, you’ll be jointly invested in an asset with real value and corresponding obligations, both financial and non-financial.
So what are some key considerations?
From the very start, you and your co-buyer(s) will need to communicate clearly. How much does each person bring to the table? What is each person looking for in a property? What motivates each person to co-buy? What does each person expect from the arrangement? How long will it last? It is imperative that each co-buyer is able to clearly articulate the answers to these and many other questions. The risk of not doing so is that you waste time and effort, or worse, your relationship or bank account suffer.
A financial asset that sits jointly on each co-buyer’s personal balance sheet is a tricky pig. If the co-buy is executed correctly, many of the risks can be controlled for with intelligent planning and tailored risk mitigation tools. Life being unpredictable as it is, it’s crucial that co-buyers share a degree of trust. A written agreement can help protect against certain defined tail-risks, but a fundamental degree of mutual trust between co-buyers is key.
Whether buying with friends or family, purchasing a shared asset has implications beyond interpersonal relations. Mortgages are joint and severally liable, meaning that should your co-borrowers disappear or declare bankruptcy, you will be on the hook for the remainder of the loan (in its entirety). Should your co-buyers fall behind in mortgage payments, this could affect your credit score unless you are able to make up the difference. Bottom line: make sure you choose financially stable co-buyers.W hile communication, trust, and solvency may seem like obvious ingredients for a successful co-buy, these are important considerations that warrant dialogue between prospective co-buyers. Done properly, co-buying a property is like entering into a business partnership, even/especially when this involves family. As with any partnership, a co-ownership arrangement is likely to benefit from transparency and clear operating guidelines. To find out more about these three pillars, visit us online at GoCoBuy.com.