What to Know Before Buying Property with Friends or Family

‍With Sydney property prices continuing to challenge many buyers, more people are purchasing property with friends, siblings, parents, or partners to help enter the market sooner. Pooling deposits and sharing mortgage repayments can increase borrowing capacity and make home ownership more achievable, particularly for first-home buyers.

‍However, while co-buying may seem straightforward at the beginning, purchasing property with another person involves important legal and financial considerations that are often overlooked. Before signing a contract, buyers should understand how ownership arrangements work, discuss financial expectations clearly, and consider what may happen if circumstances change in future.

‍1. Understanding Ownership Structures

‍One of the first decisions co-buyers need to make is how the property will be legally owned.

‍In NSW, property is generally owned either as “joint tenants” or “tenants in common”. Although the names sound similar, the legal effect of each structure is quite different.

Under a joint tenancy arrangement, each owner holds an equal interest in the property. Importantly, joint tenancy includes a “right of survivorship”, meaning that if one owner passes away, their interest in the property automatically transfers to the surviving owner, regardless of the terms of any Will.

By comparison, tenants in common allows co-owners to hold different ownership shares in the property. For example, one owner may hold a 60% interest while another holds 40%, reflecting unequal financial contributions. Unlike joint tenancy, each owner’s share forms part of their estate and may be transferred according to their Will.

The ownership structure selected at the time of purchase can affect estate planning, future sale arrangements, taxation considerations, and the rights of each owner. Buyers should therefore carefully consider which structure best suits their personal and financial circumstances before committing to the purchase.

2. Discussing Financial Contributions Early

‍Many co-buyers focus primarily on securing finance approval but spend less time discussing how financial responsibilities will actually be managed after settlement.

‍While one person may contribute a larger deposit, another may intend to contribute more towards mortgage repayments or future renovation costs. Ongoing expenses such as council rates, strata levies, insurance, repairs, maintenance, and utility costs should also be discussed early in the process.

Financial expectations can become particularly complicated where contributions are unequal. For example, one owner may receive financial assistance from parents, contribute savings accumulated before the purchase, or pay for significant renovations after settlement. Without clear discussions early on, disagreements may arise later regarding ownership interests or entitlement to sale proceeds.

Co-buyers should also consider how future changes in financial circumstances may affect the arrangement. Situations such as job loss, relationship changes, starting a family, or increasing interest rates may affect one party’s ability to continue contributing equally towards the property.

Although family members or close friends may initially feel comfortable proceeding informally, having clear discussions regarding financial contributions before signing a contract may help reduce misunderstandings later. ‍

3. Having a Clear Exit Strategy

When purchasing property together, many buyers focus on entering the market but give little thought to how the arrangement may eventually come to an end.

Over time, circumstances can change significantly. One owner may wish to sell their interest in the property, relocate interstate, move overseas, or purchase another property independently. In other situations, financial hardship or personal disputes may place pressure on the ownership arrangement.

Without a clear understanding between the parties, disagreements can arise regarding whether the property should be sold, retained, or refinanced. For example, one owner may wish to keep the property while another wants to access their share of the equity. Refinancing may also become difficult if one owner cannot independently service the loan.

These issues can become even more complicated if the property has increased substantially in value, particularly where owners contributed different amounts towards the purchase or ongoing expenses.

Discussing possible future scenarios early may help co-buyers better understand their respective expectations and responsibilities before committing to the purchase.

4. Considering a Co-Ownership Agreement

A co-ownership agreement can help formalise the arrangement between co-buyers and provide greater clarity regarding each party’s responsibilities.

Depending on the circumstances, a co-ownership agreement may address matters such as:

• ownership percentages;

• financial contributions towards the property;

• responsibility for ongoing expenses;

• procedures for selling the property;

• buyout arrangements; and

• dispute resolution processes.

While co-buyers may not expect disagreements to arise, documenting expectations clearly at the beginning of the arrangement may help minimise uncertainty later. This can be particularly important where owners contribute unequal amounts towards the deposit or mortgage repayments.

A properly prepared agreement may also assist parties in navigating unexpected life changes, including financial hardship, relationship changes, or differing long-term investment goals.

Obtaining legal advice before signing a contract may help co-buyers better understand the legal implications of shared ownership and whether a formal agreement is appropriate for their circumstances.

Final Thoughts

Buying property with family members or friends can be an effective way to enter Sydney’s competitive property market sooner. However, co-buying arrangements involve more than simply sharing a deposit or mortgage repayments.

Understanding ownership structures, discussing financial responsibilities clearly, considering future exit arrangements, and obtaining appropriate legal advice are all important steps before committing to a purchase. Taking the time to address these issues early may help buyers better protect both their investment and their personal relationships.

Sources‍ ‍

• The Law Society of NSW – Buying a Home
  ‍ ‍https://www.lawsociety.com.au/for-the-public/know-your-rights/buying-a-home/once-you-have-decided-buy

• Lexalia – Co-Owning Property in NSW: Legal Guide to Shared Ownership
  ‍ ‍https://www.lexalia.au/insight/co-owning-property-nsw-legal-guide-shared-ownership

• ATO – Co-ownership and Right of Survivorship
  ‍ ‍https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/inherited-assets-and-capital-gains-tax/co-ownership-and-right-of-survivorship

• LJ Hooker – A Short Guide to Property Co-Ownership
  ‍ ‍https://www.ljhooker.com.au/blog/a-short-guide-to-property-co-ownership

Disclaimer

This article is intended for general informational purposes only and does not constitute legal, financial, or professional advice. Readers should obtain independent legal and financial advice tailored to their individual circumstances before making any property or investment decisions. While reasonable care has been taken in preparing this article, no responsibility is accepted for any loss or liability arising from reliance on the information contained herein.