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Co-ownership: Buying a First Home with Family or Friends

In New Zealand's competitive housing market, pooling resources with family or friends could make home ownership a reality for some first home buyers. To ensure a smooth and successful home buying journey though, it's important to make well-informed decisions and establish clear guidelines. Get valuable tips for co-ownership in New Zealand: from choosing the right person to buy with, drafting a property sharing agreement, to deciding how the loan will be repaid and determining an exit strategy.

Choose the right person to buy with

Before embarking on a joint home buying venture, one of the most important decisions is choosing the right person to partner with. Whether you choose to buy a first home with a family member or a close friend, consider the following factors:

  • Financial stability: Can all co-buyers afford to contribute their share of the deposit and mortgage repayments? Assess the financial health of each co-buyer by reviewing credit history, income stability, and debt-to-income ratio.

  • Shared vision: Do all co-buyers have similar goals and expectations when it comes to the type of property, location, and budget? Open and honest communication is key to avoiding future conflicts.

  • Compatibility: Are all co-buyers compatible? Consider lifestyle preferences, home ownership responsibilities, and long-term plans for the property.

Draft a property sharing agreement

To protect everyone's interests and avoid potential conflicts, draft a comprehensive property sharing agreement that covers multiple scenarios. This will be the “go-to” document that all co-buyers will refer to should any decisions about the property need to be made.

This agreement should outline:

  • Ownership percentages: Clearly define the percentage of ownership each co-buyer has in the property. This will determine their share of equity and responsibility for ongoing costs.

  • Maintenance and repairs: Establish clear guidelines for property maintenance and repairs, including how costs will be shared and how decisions will be made regarding major repairs or renovations.

  • Occupancy and use: Clearly define how the property will be occupied and utilised. Address issues such as guest stays, renting out rooms, or sub-letting to ensure everyone is on the same page.

  • Exit strategy: Decide on the process for selling the property or buying out a co-owner's share should someone want to move on or circumstances change.

  • Dispute resolution: Include a mechanism for resolving disputes, such as mediation or arbitration, to prevent conflicts from escalating and damaging relationships.

Decide how the loan will be paid

When buying a property with family or friends, deciding how the loan will be repaid is an important step in protecting all co-buyers’ financial stability. In New Zealand, there are two ways co-ownership loans can be structured:

  • Joint loan: A joint loan is the most common option where all co-buyers are equally responsible for the loan. This option can simplify the repayment process, but it also means that each person is liable for the entire loan amount if someone defaults.

  • Individual loans: In some cases, each co-buyer may choose to obtain an individual loan for their share of the property. This approach allows for separate responsibility and financial independence.

Before entering into a property sharing agreement, it’s vital you seek professional legal advice to understand the implications of each type of loan structure and choose the one that aligns best with your circumstances.

A viable and rewarding solution

Buying a first home with family or friends in New Zealand can be a rewarding and financially viable option. By choosing the right co-buyers, drafting a property sharing agreement, and deciding on an appropriate loan repayment strategy, you can ensure a successful and harmonious home buying journey.