Joining forces with a member of your family or a friend could be an affordable way to own property. Since property is not a short term investment would you buy it with someone else? Make sure you consider this very carefully.
Albertus van Staden, Head of Credit at FNB Housing Department unpacks things to iron out before getting a joint bond:
Expectations when buying
There are many types of joint partnerships, such as having your parents helping you buy your first house, or investing in a property with your friend or partner. It is important to understand what your expectation of the asset is from the outset, such as a return on investment.
Who will be occupying the property?
If both of you are living in the property initially, outline what will happen if one of you moves out and who is responsible for getting a replacement tenant.
“You or your partner will still be responsible for a portion of the bond after moving out,” says van Staden.
If one of you will be living there, discuss what the rent should be, and what the annual escalation fee should be.
If you are renting it out, it is more than likely that you will need to put in more money over and above the rental amount, especially in the first few years as rental won’t cover all the expenses. There is also personal income tax to consider.
“When renting out, also understand that there may be periods where the property does not have a tenant, so you both will need to be able to cover the full cost of the bond and expenses,” warns van Staden.
Taking care of the small stuff
Property ownership is more than just the money that needs to be paid over each month.
“Properties require time and effort, just like a car it needs to be maintained and kept in good condition, discuss with your partner who will be responsible for dealing with the tenants, and any property maintenance issues such as burst geysers or general sprucing up,” says van Staden. “Both parties should have the full obligation to keep up with ongoing maintenance.”
Change in circumstances
It is almost guaranteed that the circumstances of both buyers will change over the period of ownership. Life changes could include moving to different parts of the country, or even overseas. Getting married or merely wanting to upscale.
In some instances, having a property in joint ownership will mean that someone isn’t able to afford their dream home later in life as the bank will take into account all your responsibilities when you complete affordability assessments.
If one of you is no longer able to uphold their end of the bargain because of financial difficulty, what will the solution be? This becomes tricky if you haven’t had the property for very long, as it may not have appreciated in value, and in worst circumstances, you may find that you actually owe money if you are required to sell. Paying a bit more into the bond initially is a great way of helping you work through the reality of unforeseen financial difficulties. This will give you both time to work out a solution.
All great things usually come to an end, and invariably your property partnership will need to be broken up at some point.
If both of you want to sell and get the capital out, then proceeding with the normal selling processes is fairly straightforward, however, if one partner wants to keep the property, it can become slightly more complex.
In this case, you are able to do a substitute of the debtor which is considered an entirely new contract with the bank.
You will need to agree to an appropriate price if selling to one of the partners, as this will not be going onto the open market. Consider using an estate agent or valuator to ascertain a fair estimate for the value of the house.
There will be associated costs with selling the property such as bond attorney and transfer fees if they apply, so make sure you have budgeted adequately.
Draw up a contract
Once all of the various aspects have been discussed and agreed upon, draw up a contract, even if you are buying with a family member or a long term partner. It will make life far less complicated a few years down the line.
Would you consider buying property with a partner? Why, why not?