Buying a property with your best mate might sound like a good idea: half the deposit and half the risk, and double the fun, right?
It’s all well and good while times are positive. But what happens if your friend gets sick or loses their job, and suddenly they can’t pay their half of the mortgage?
This is one of the many considerations that's would-be property owners fail to take into account when they’re excitedly planning a joint venture.
Jacob Duane from commercial litigation and real estate law firm Bennett & Philp’s stresses that relationships can often fracture after a poorly considered dual-purchase. He adds that although there is a long list of things investors should do when purchasing a property, there is an even longer list of what they should not do.
“You often only read of the success stories, but the fact of the matter is that it isn’t difficult to make mistakes that could go on to have serious legal and financial consequences,” Duane says.
“These errors – many of which are easily avoidable – are sometimes mistakes that you might not even know about at the time, and they could potentially impede the success of any property investment. So, it’s imperative as a property investor that you do your research and engage qualified consultants who are working in your best interests.”
For instance, purchasing an investment property with friends and family could seem like a good idea at the time… but it might just turn out to be the biggest mistake you can make.
Property and finance expert Noel Whittaker says that when considering an investment partner, you should look closely at the differences in your temperaments, ages and investment goals.
Whittaker adds that changes in circumstances, for example new relationships, a death or sudden unemployment, are also key considerations when weighing up a business partner – and make no mistakes about it, an investment decision is a business decision.
“Your best business partner is always the bank; all they ask is that you pay them interest,” Whittaker says.
Avoid this mistake by:
Really thinking carefully before you invest with family and friends.
Choosing to invest with friends and family can result in a fire sale outcome whereby the vendors are left with no choice but to sell their assets at heavily discounted prices, usually because of financial distress. This kind of outcome can put serious stress on your relationships.
“I have seen these investments go sour numerous times and it’s not worth the hassle,” Duane says. “To save you the money, time and stress, I would strongly recommend against it.”
For the full story covering the top 5 biggest property mistakes, read the complete feature story in the February 2019 edition of Your Investment Property.
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