How to buy a first home with friends and family

Unable to buy their first home on their own, some New Zealanders are teaming up with family and friends to enter the property market.

Owners share their condominium experiences, while experts advise what to look out for in this type of arrangement.

Photo: RNZ / Claire Eastham Farrelly

Chris, 25, works in customer service and lives in Tauranga. A good saver, he had enough money for a deposit but did not earn enough to service a loan on his own. As a single man, he didn’t have a partner to team up with so thought: why not come in with a friend?

“My friend and I got stuck in Tauranga, work-wise, so I just said to him ‘why don’t we do it, if we put together what we have we can probably do it – that’ is the first time, not forever, and if any of us want to leave, we can,” Chris said.

“It really felt like a now or never situation.”

Within weeks they were talking to a broker, and after a few months – and dozens of houses opened – they bought a house. They moved mid-2021.

“It’s more about the person you join. So far so good, and I can trust my co-owner and he can trust me, but you really have to make sure he’s got it.” acts the right person,” Chris said.

Chris had met his co-owner in college seven years earlier and they had become close friends. Before buying a house together, they had several meetings to discuss their financial history, how each lived, and what they wanted in a property.

They drafted a property-sharing agreement, which covered several scenarios.

“We’ve tried to cross out all the tough stuff, so if any of those things happen, we have a document we can refer to.”

Clearstone Legal director Debra Barron said the agreements covered how the loan or loans would be repaid, who would pay for maintenance, what would happen if renovations were needed, what would happen if any part died and what would happen if one party wanted to sell.

“It can’t cover every scenario, but it can provide a mechanism so that if someone isn’t happy with the ownership split, they can say ‘well, I’m giving notice of sale,'” said Barron said.

Generally, if one party wanted to sell and the other didn’t, then the other co-owner or co-owners would have the option of buying the person’s share, Barron said.

If they couldn’t redeem them, the person who wanted to sell then had the option of redeeming the other co-owner or co-owners. If they couldn’t or wouldn’t, the house went on the market.

It is up to the buyers to manage the loan – maybe they have all their own loans or they are contributing to one loan. Some may be able to repay their loans faster than others, while others may have larger loans depending on their deposit contribution.

Such was the case of Tamara, a woman from Auckland, who bought her first house with her partner and her partner’s brother in 2012.

The brother was 20 at the time and working full time, so he had a deposit but could not repay a loan on his own. Tamara and her partner were fresh out of college and had no savings, but had good jobs and could help pay off a loan.

The three of them bought a piece of land with two properties, one to live in and the other to earn an income, and they never looked back. By buying before the real estate boom, they were able to capitalize on their capital growth and, within a few years, bought two more properties together.

Tamara and her partner have since been able to buy the brother of all three houses, and he is now looking to buy a house on his own.

Knowing the difference it made for them, Tamara encouraged her three brothers to do the same – she even gave a PowerPoint presentation.

“They were all in their early twenties, renting at the time, and had no way of buying individually,” she said.

The three and one of their partners bought their first home together three years ago.

“They owned it for two years, then were approached by a developer who wanted to develop the site, so they sold it for a good profit, and each walked away with enough to buy their own house individually, which they did.”

Tamara and Chris are clear that if they hadn’t bought with their friends and family, it would have taken them years to buy their own home, if at all. For Tamara, buying early with her family means she has been able to go on and buy more properties and plans to retire early.

For Chris, this meant that his dreams of home ownership were coming true.

“I think I should be earning six figures comfortably enough to be able to own even a basic property on my own. I don’t think I could do it myself – that’s just the reality.”

Expert advice

While there are many success stories, not all condo deals end well.

Sometimes one party wanted to sell and the other didn’t, or there were misunderstandings, said Barron, director of Clearstone Legal.

For example, Barron has seen several cases where a couple bought with one of their parents, who provided the “lion’s share” of the costs but ended up with the smallest room in the house.

“When it fractures, it’s really awful, it breaks up families if it’s not going very well.”

Barron also warned people to be aware of capital gains tax if one of the co-owners wanted to move out while the other continued to live in the house.

Let’s talk! Mortgage adviser Sarah Bloxham advises her clients to commit to living together for at least three years. This way they can settle in and get a clear idea of ​​the minimum length of their arrangement.

She said buying with friends and family was becoming increasingly popular and often recommended it to customers who couldn’t get a loan on their own.

Bloxham talks to its customers about all the assumptions – and if you have a partner and he wants to move in, how are you going to split the bills, and if any renovations are needed, and if you get a roommate – how will that money be- did he share? She recommends that they hold monthly meetings to discuss any concerns.

Sometimes she is approached by people who want to buy their own house but their partner does not.

“And I always come back saying ‘you have to be on the same page, or else you have to find a friend to buy from and then have a relationship deal, because you keep doing it. You never want to look back and say “I wish I had”, because what happens in five years, the partner says “I’m ready now”, obviously the loans change so much, the prices of the real estate changes so much and it’s very difficult.”