Buying a house with a mate
These two tradie mates came to me with very little deposit and drive to own property – rather than paying rent.
It was a while ago, when property prices were lower, as were wages. Their combined income was $110,000 and savings were minimal.
Borrowers were eligible for a first home owners grant which had both cash and stamp duty incentives.
Why did two friends buy property together?
On the face of it, these buyers complimented each other well. Having complimentary, or aligned goals, is the first step in deciding if buying a house with a with a friend is for you.
Their goals to attain home ownership were mutual.
One earned a lower income but had majority savings.
The other earned more, potentially enough to qualify on his own, but did not have enough savings.
By combining their financial position, they were eligible to qualify for a home loan to make the purchase happen.
They could not have bought at this entry level without each other.
The property they purchased
They bought a place for $270,000 on the outskirts of Perth. The property resembled a small beach-style shack on over 800sqm.
Desirable area? Not their ultimate deistination.
Sensible purchase within their means? Yes.
Attractive capital growth potential? Yes.
The property was purchased for the purpose of living in so they used the first home owners grant to assist with initial costs.
The home loan structure
A small deposit meant they were in lenders mortgage insurance territory. The considered avoiding LMI with a guarantor home loan, but it was a big ask for a parent to not only guarantee their son—and in doing so, his mate too.
Even though they were buying a house with a friend, they were eligible for a high 97% LVR home loan.
They contributed an equal amount of savings, which is a not always necessary when buying a house with a friend. Equal contribution. Equal ownership. Equal loans.
They share the home loan 50:50, by having a split home loan of $130,000 each.
The fallout from buying a house with a friend
Four years later the friendship faltered.
Like in any relationship, both had put in money, effort and time.
They had a plan for each of them to move forward. In this case, the higher income earner bought the other owner out. They did not have much in savings but what they did have was equity from capital growth and some loan reduction.
The remaining owner had a home loan approved to take over the other property share, which included a payment of some property equity. The remaining owner also needed to cover some stamp duty costs.
The new owner carried on.
My take on two mates buying property together
Ownership happened sooner
Buying a property with a friend made homeownership happen for each of them.
Not including a guarantor as a good idea – the spirit if guarantee is to help family – not son’s mates.
The home loan compromise was a split home loan – where borrowers share the obligation for all home loan debts. I prefer a property share loan arrangement but in this case it would have been difficult to prove eligibility for property share.
….and the fallout
While it was not the intention for these two co-owners to fall out of friendship, they did.
Selling property is the last of the exist strategies for a home you live in.
Buying out a co-owner out can be a good idea if the property still suits the remaining owner’s goals and objectives. Staying in the same property achieved the following for the remaining owner:
- Avoid the transaction costs of selling and buying again.
- He knew the property and area.
- Avoided time spent out of the property market.
This story is now complete
I just looked up the property value and looks like the remaining owner sold (in 2024) for around $450,000.
From a position of not being able to buy, he did good.
Note for readers: Some facts and figures altered for to retain anonymity of my clients.
Always seek financial, tax and legal advice specific to your situation.
