Two brothers
  • I have been going over past home loans I have written in a Mortgage Broking capacity to analyse how different people have bought property together.
  • You do not need a spousal partner to buy property with someone else.
  • These brothers are a great example of how buying investment property with a sibling can work. Similar in every sense – looks, mannerisms, savings, income. You name it!

Buying investment property with a sibling

The good thing about buying property with family – both are a long term commitment.

When looking to buy property with a sibling your objectives should align or be complimentary.

Buying property with other people is often about getting over home loan affordability hurdles. It was different for these guys. Their approach could be defined as conservative and sensible.

It may sound boring, but it worked.

These brothers were in different hemispheres – one in the UK and one in Australia. They were good at saving. So, rather than sit on their savings, they put them to work.

They could have purchased property separately, but this was something that they wanted to do together.

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Financial position of the bros

They were financially strong on their own, so together made a solid bet for lenders. The only limitation to lender and product choice was that one brother was working overseas. They needed a lender with an appetite for expats earning a foreign currency.

Earnings were about $75,000 each and they had about $200,000 in savings.

Some lenders actively seek home loan business from Australians residing overseas. My article on foreign currencies shows just how willing some lenders are to approve home loans to expats.

Why did they buy an investment property together?

Despite being in a strong financial position where they could have bought for themselves, they chose to share the investment property ownership.

These guys were conservative in there spending behaviour, job stability and savings patterns.

They were both in their twenties. It was their first foray into home ownership. There is something to be said for not going all in – it can keep options open for later.

The investment property

They bought an old house in 2013 for $465,000 on a big block just 25 minutes from Perth. It was close to the coast in an area earmarked for residential development.

Sometimes old homes, like the one the brothers purchased, do not yield the same rental return as equally priced apartments. Some investors reconcile lower ongoing returns with the potential for significant capital growth.

Joint ownership of investment property is a way of sharing the ongoing expenses that often come with a long-term investment hold.

The home loan

These brothers avoided LMI (and then some) with a 72% LVR home loan. Buying an investment property with a sibling means you can pool savings. These bigger deposits can open up access better interest rates reserved for lower LVR’s.

The large deposit was mainly about putting savings into the purchase to minimise ongoing home loan repayments. This approach reflected their financial position – solid, conservative, sensible.

The brothers chose principal and interest repayments despite the investment nature of their home loans. They did not have owner-occupied debt so this made some sense—to a point. As they found later, accessing equity can be tricky when you borrow with a non-spousal co-owner.

For convenience more than anything, they contributed uneven amounts and so had split home loans to represent the unequal contribution. I have used other home loan products structure for shared ownership that can better represent borrowers lending exposure. The eligibility hurdles for these products mean it is not for everyone.

There were two split loans – $180,000 and $155,000.

Ownership was equal but the different loans amounts reflected unequal contributions.

New partners – New needs

In time the UK-based brother returned to home to Australia.

Both brothers found partners.

One had significant savings and bought a new family home without the investment property loans impacting his borrowing capacity.

The other brother wanted to access equity that was in the investment property.
Do-able yes. Difficult – yes. This is because there is another stakeholder. His brother.

When you access equity in a home you jointly own with someone, they need to be aware of it. They will likely need to go guarantor, which often involves legal advice.

Consequently, lenders can place limitations on overall loan to value ratios restricting the amount of equity you can access.

Family discussion at mealtime

My take – Family traits run strong

Sensibly geared
These brothers were conservative. They could have bought a much higher-priced property.

While they opted for principal and interest repayments, they preserved access to funds by making minimum repayments and putting extra savings into an offset account.

Staying conservative, preserving savings, and utilising an offset account for extra funds meant they had future property buying options without needing to sell this investment property.

Accessing equity
Accessing equity for either of these brothers can be tricky. One would likely need to consider a guarantor role. If it were two friends, as opposed to two brothers, a guarantor position may not even be an option.

One way to be less reliant on accessing access in a co-ownership situation is to preserve funds by having interests only repayments instead of principal and interest. A less conservative approach to borrowing.

I spoke with one of them seven years after the purchase about accessing equity. The loan balances were now $135,000 and $115,000. Had they been on interest only repayments the amount (theoretically) that could have been offset would be the amount they had repaid – $90,000.

Could this $90,000 have been funds avaialble in savings – instead of property equity?
Maybe. This ignores the interest rate difference in repayment types as well as the tendency to spend money you are not using for repayments – which I doubt these brothers would have done!

Family traits
Being a mortgage broker for over 15 years, I see patterns. Financial behaviour patterns within families always intrigue me.

These brothers are not the only siblings in the family. I have met with them all.

All had university degrees.

All had stable employment.

All had savings.

All bought property relatively young.

All bought conservatively.

All spend modestly.

I have not met their parents but if I was to guest – they would be just the same.

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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.

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