At the end of 2021, Sara* dove headfirst into a decision she would later regret. She had made “some money” buying cryptocurrency and wanted to use it to get into the property market. She felt there were two options she could afford: a studio apartment in the city; or teaming up with a friend to split the cost of a house in a regional area. Desperate for extra space after the pandemic, she chose the latter, and the pair bought a little seaside fixer-upper cottage. They planned to do some light renovations, then live there together.
Sara was excited about buying with one of her closest friends, someone she’d known for over a decade – “longer than any relationship I’ve had”. But things unravelled quickly. The renovations blew out, becoming far more expensive than either had anticipated. Interest rates started their rapid ascent, adding extra financial pressure. Sara began to feel that she was doing more renovation work than her buying partner, creating a sense of imbalance. And they started to clash on decisions, big and small.
“We’re getting into stupid fights about what floorboards we’re going to get because I’m the one who’s always like, ‘we can’t afford that’,” Sara says. She assumed years of friendship meant they would make a good team. “And then you find out through the process of trying to build a house together that maybe you’re not actually that compatible.”
At the start of the process the pair paid a lawyer to write out some terms, including what they’d do if one party wanted to sell – “as a friendship protector,” Sara says. But “there’s nothing in the clauses that says you can’t be difficult”.
They’re now close to finishing the renovations. But after all this, do they even want to live there anymore?
“Not really, no,” Sara says. “So many things have changed.”
Sara and her friend aren’t alone in pooling their money to get on the property ladder. Often, those looking to buy with a friend will use a tenants in common agreement – a legal structure where each party has a defined share of a property they’re purchasing (rather than an automatic 50/50 split). Victoria Divine, a mortgage broker, podcaster and author of Property with She’s on the Money, says lately she puts together a tenants in common agreement “every two weeks or so”.
The incentives for buddying up to buy are obvious. “Buying property is getting harder and harder,” Divine says. She points out that property prices have far outstripped wage growth, putting home ownership out of reach for most people on a single salary. This means those who still want to buy property have to “look for alternate ways of doing it”.
“And buying property with other people, whether that’s a friend or a family member, can obviously get you into home ownership faster.”
When it works well, buying with friends or family can be a foot into the market, or a way to afford something with better capital growth potential, building equity that can be used on a forever home later. And it’s not just young people who are doing it. Divine says she’s seen a number of older women buy together: “Single mums getting in with another single mum and cohabitating and living their best life.”
But it’s “so important to choose the right person,” Divine says – because there are a raft of ways it can go wrong. While banks are generally happy to lend to those buying as tenants in common, many will require the two parties act as guarantor for each other, which means being on the hook for the other party’s debt if they stop paying. A co-owner defaulting on their mortgage could affect the other’s credit rating, and because all owners need to agree to a sale, co-owners can end up trapped if one party wants to sell but the other refuses. Or, as Sara’s experience shows, it might simply erode a relationship through a thousand smaller squabbles.
Some worst-case scenarios can be planned for through a legal document called a cohabitation agreement, Divine says. These stipulate terms for a purchase – for instance, planning for what might happen if one person can no longer meet their financial commitment, or simply laying out exit strategies. (This is the legally-binding, but not personally effective “friendship protector” Sara speaks of).
Hamish Landreth, a financial consultant at Prosperity Wealth Advisers, says that buying property via a company or a trust is another way to structure co-ownership, and allows for more flexibility to change ownership percentages in the future, if one party wants out.
Of course, buying with a partner isn’t foolproof, either – couples break-up. And many of the legal implications are the same either way. “But the difference is when you’re with a partner, you’re going through a shared set of circumstances,” Landreth says. “With someone else, it’s more likely that you’re going to have different circumstances. One person might suddenly need to move overseas for work. In a couple, you’re making that decision together.”
Or one person might simply want to move out. That’s what happened to Hayley*, who bought a property with her two older sisters when they were all in their 20s. After a few years living together, Hayley’s eldest sister had a baby and wanted her own home, so she sold her share in the property to their middle sister. The structure of their loan meant that Hayley became her middle sister’s guarantor, “for a huge amount of money”.
Hayley later met her own husband. When the couple wanted to buy a house together, Hayley discovered her options were severely restricted by her sister’s debt. Going in, she did not consider this possibility, and it made for a stressful experience.
“We were all just frustrated … really bound together and financially stuck,” she says.
“You buy in your mid-20s and suddenly everyone changes in different ways – suddenly one sister is married with kids and doesn’t want to live in that area, and another sister moved overseas.” Their goals no longer aligned, she says.
The trio eventually sold. But it remains a family sore spot, especially for Hayley’s middle sister, who took on too much debt to buy the eldest out. “It’s almost a taboo topic,” Hayley says. “Like, it really hurts.”
However, Hayley doesn’t regret the purchase. She and her sisters bought over a decade ago, and getting into the market early eventually benefitted her financially, despite the painful period.
It’s also possible to have a perfectly smooth experience buying as tenants in common. Deb* and her best friend bought an apartment together in 2018, and moved from Sydney to Melbourne to live there.
Their only contract was a “gentleman’s agreement” around what they would do if one party needed to sell. Five years on, Deb’s friend is planning to move back to Sydney to be closer to her parents; but she has given Deb a couple of years notice. This means Deb has time to prepare for buying her friend out, which she intends to do.
“My story is probably one of the better ones,” Deb says. She and her friend had known each other for years, and travelled together – “travelling really does make or break friendships” – so the communication has been straightforward. Plus, in the current interest rate environment, Deb is relieved to only have half a mortgage to worry about. “I do feel sorry for families on one income that have a million-dollar mortgage.”
And would she have been able to buy at all without teaming up with her friend?
“God no,” Deb says.
Meanwhile Sara feels bound, emotionally and financially. “My money is just all tied up in this house,” she says. “I think the thing people don’t realise is we’re effectively de facto in this … we have our own mortgages, but we’re so tied.”
It has been a first-home buyer’s baptism of fire.
“I’m someone who didn’t come from money, but I suddenly came into money. In a moment of vulnerability or naivety, I got swept up in this idea of buying a home because it was somewhere for me to put my money at that moment,” she says. “But … I put myself in a pretty tricky spot.”
The contract the pair signed did lay out an exit strategy – if one party wants to sell, the other gets first dibs to buy them out. If that isn’t possible, the pair have to sell. Given neither has the funds to buy the other out, Sara thinks they will probably end up selling the property far sooner than they anticipated. She just has to hold out until then.
“I guess the benefit is that it’s not forever, and I still have money that’s secure, and we’ll have a nice place eventually,” Sara says. “That’s more than a lot of people get.”
*Names have been changed
