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Getting married, opening a joint account, having your first argument – it’s all part of life in a relationship. Buying a property with your partner is another one of these major milestones. It is a huge investment, and fraught with emotion.
If you’re looking to buy your first home or investment property – and you plan to make the purchase with your partner, you need to agree on what you both want, and how you plan to get there.
Here’s a few tips to remove the emotion from the process, and take you through the process:
1. Set and agree on your goals
What is the purpose of the property?
Agree on whether it is to become your family home, holiday home, or an investment property that you hope will help fund your future.
Making this distinction from the beginning is important as it helps you decide what kind of property to buy, the size and type of loan you'll apply for, and plan for the tax and budgeting implications of the purchase.
If you're looking at the property as an investment, you may want to consider speaking to a financial adviser about what your other investment options are, that may be more suitable to your age and career status.
2. Decide on the ownership structure
There are two ways you can own a property with your partner: tenancy in common or joint tenancy.
Tenancy in common essentially allows you to own a defined share of the property and, if you die, pass on that share according to your will.
Conversely, joint tenancy that if one owner dies, the surviving tenant takes ownership of the property.
Other ways to own a property include through a trust, self-managed super fund, or a company.
It may be a good idea to seek legal, tax and financial advice on what structure is best for you and your situation.
3. Draft a co-ownership agreement
It may seem over the top, but when you're heading into the purchase of a property with someone else it may be wise to have a lawyer draw up a co-ownership agreement to future proof your arrangement.
This agreement can set out who lives at the property, who is responsible for maintenance, what happens if one of you dies or becomes bankrupt, and how the property should be sold if one of you no longer wants your share.
In the case of an investment property or holiday home, the agreement can outline how rent is to be distributed, or when certain people can use the property.
A co-ownership agreement can be particularly useful if you have different interests in the property or mortgage. It is important to consult a lawyer when setting up this type of agreement, as it may not be binding in the event of a marriage or de-facto relationship breakdown if it’s not properly drawn up and made binding.
4. Agree on how costs will be shared
There are a myriad of costs associated with purchasing a property: stamp duty, conveyancing and title transfer fees are just some.
Once you purchase the property there will be rates, maintenance and repair costs, insurances, maybe even renovations and body corporate fees.
All these costs can add up, so be sure to agree and record how you will share them from the outset. This may involve opening a joint bank account or offset account.
5. Safety net
It's important to note that if you take out a joint mortgage on the property an individual may be held liable for the entire debt.
For example, if you apply for a $500,000 loan together, but plan to split the repayment obligations 50/50, under the terms of the loan you may not only be responsible for your $250,000 share, but for the whole debt of $500,000. That means if your partner loses their job, becomes ill and cannot work, or just can’t make the repayments for any reason, you could be stuck making up their share of the repayments. And vice versa. As such, it’s important to get professional advice as to your mortgage repayment obligations, as well as your property ownership rights.
