Buying Properties with Others

Living in Sydney, and being a first home buyer, I saw that it would be near impossible for me to afford a house on my own. I believe this is a situation that many young first home buyers would find themselves in. Now I am not saying that buying a property is the best investment to make, it may very well not be given your particular situation. I am just stating that buying your first property at a young age can be very difficult, and if you have a desirable area to live in, well you can almost forget about being able to afford something for years. 

One option to help out with purchasing a property at a young age, is to not do it alone. You can buy with friends, family, a partner, husband or wife. Adding a second income to your mortgage repayments is definitely one way to ease the financial strain that can be felt when paying off a home loan. Unfortunately there can be a lot of other stresses that come with not doing things alone. 

Let me take you back a few years when I purchased my first property, I was only 22 when I bought my first home (I am 25 now), and the cheapest house that I could afford in a location that I was prepared to live in was around the $300,000 mark. Having a decent job at the time, the bank was prepared to lend me up to the $270,000 I needed with my 10% deposit. But this meant repayments around $1,800 a month for the next 30 years of my life. Not to mention all the other associated costs with the property, and living costs, I would definitely be under a financial strain, my life would be restricted. In my opinion I think it is important that no investment should take away from your quality of life. There is no point making money in your life, if you have no life to live. 

What seemed to be a logical solution at the time was to purchase a property with my brother, he was 29 at the time, he was still renting but was keen to finally have something more permanent. So now not only with the extra savings he brought it, he also had the extra income to pay down the mortgage. Going to the bank, they allowed us to borrow up to $550,000, but this was not what we needed. We were still only hoping to purchase a property around the $300,000 mark. We did this for a couple of reasons: 

1. We did not want to be under a financial pressure for the next 30 years of our life, we wanted to be able to still live a life
2. Our aim was to pay off the property in under 10 years, so by purchasing a long way below our capacity, we should be able to achieve this
3. If one of us lost their income, then the other would be able to cover the mortgage during the other person's down time
4. It gave us some leverage when looking at a property, we could increase our desired mark if we found a particular property that we were interested in

And that is exactly what happened in the end, we found a property that suited both of our needs for $350,000. Slightly higher than our desired range, but it matched everything we wanted so we ended up going for it. 

Now at the beginning, we had to be open to each other about what we both wanted. We both had to be on the same page, otherwise it would never work out. So this was basically how we started, setting up a list of characteristics that the property had to have to suit both of us -

• It had to be near a train station, preferably one that express trains go to (working in the city typically, I needed to be able to travel there easily)
• We had to live not far from my brother's work, he worked in north west Sydney so we could not stray too far from that area
• Had to live on a quiet road (when I rented I was on a main road and the noise was unbearable for me)
• Walking distance to shops (I did not have a car and needed to walk to shops)
• Minimum 2 bedrooms, preferably 2 bathrooms

Above was the basic criteria we had for a property, there were a few other things, but they were mainly just preferred options and not really essential. Once we had that list set up, and the price range. We were able to set on a location. We were searching around Western Sydney as it was the only area we could afford that matched the above criteria, in the end we purchase a property in Seven Hills for $350,000. A 2 bedroom, 2 bathroom townhouse built in 2004. If you are interested in more information about the property feel free to email us and I can let you know more - streamlineinvesting@gmail.com

I thought that buying the property would be the easiest part, but turns out that was only half the issue. We had talked before purchasing the property about how we would make sure everything worked out evenly between us, but nothing was set in stone. Being brothers, although not that close, there was still a strong trust between us, and we both knew that we never try and scam each other, so we were always going to be safe in that respect. But there was still the challenge about how to make sure everything is kept even. In the end, I was able to develop a spreadsheet which tracked all the repayments, and other house expenses. It would be simple to just both pay half the mortgage and half the bills. But because we were hoping to pay down the mortgage as quickly as possible, it was better for us to simply pay off as much as we could. This is where the spreadsheet came into it.

The spreadsheet itself is not too complicated, just tracks all the repayments made by each individual, and other household bills that have been paid. By tracking the repayments it is simple to see who owes who at the end of the mortgage. Before the mortgage I was also able to have a plan on how long it should take to pay off the mortgage, and where we should be at any given point in time. So by tracking the repayments, I have also been able to compare where we are in comparison to where the target is.

I will touch on this topic a bit more in later posts as there is a lot of information to cover, particular in intial agreements that should be developed prior to entering into a sort of deal like this, which involve exit tactics if either member wishes to pull out. Also with the added experience of purchasing an investment property in the US with my business partner, this will provide more valuable information for people looking to do the same.

If you would like a free copy of a loan tracking spreadsheet, feel free to email us at streamlineinvesting@gmail.com

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.