There can be many benefits with getting together with a friend or a group and investing in property but it is important to be aware of some of the costs. Some of which does not become obvious until later on.
With housing loans the banks do consider approving loans for two or more investors looking to buy a house together.
The Good
Many heads are better than one, you might have already experienced the number of things you have to think about when buying a house. Just doing the home work on the area and a particular property can take a lot of time. With more hands on deck you can lighten the work load of making an informed decision.
Lower risk, if you are teaming up with the right people some of the risk is spread. This makes it easier to handle any sudden expenses such as unplanned maintenance costs or loss of rent. Any sudden changes to income, such as redundancy, can be easier to manage.
The Bad
As a joint mortgagee with a friend a bank will hold you both responsible for the debt jointly and severally. What this means is that if you do not make the required repayments the bank can ask your friend for the whole amount.
The joint mortgage, and your liability to repay the entire amount jointly owned, will be taken into account by banks when considering future lending.
This is less of a factor if you restrict any joint borrowing to cash flow positive or cashflow neutral properties. If the rent from the joint property pays most of the joint mortgage any loan you apply for in the future will be impacted to a lesser degree.
The Ugly
It is important to think carefully about the long term goals for the joint property. If one friend decides that they would like to sell the property and the other doesn’t things can turn nasty.
It is also important to plan in advance for what happens if one person decides to sell up or can not afford to make payments. How do you value the property? Who markets and sell it? Who gets the first option to buy? These are all important questions and can be addressed in writing before buying.
In Summary
Investing with a group or a friend can be a great way to build wealth, if you look around a lot of our biggest businesses are effectively big groups of individuals with capital. It has its risks which can be minimised and managed.
This article has been written by Hamish Patel, mortgage broker with mortgagesonline.co.nz. Ph: 09 625 4693, Mobile: 021 625 693, hamish@monline.co.nz
