Buying A Property with Friends: Smart Move or Financial Blunder?
With the cost of Irish real estate at a premium, it can be tough to gather up enough funds to lay down a deposit on a place to call your own.
The average house price is now €263,000, meaning first-time buyers have to stash away roughly €26,000 to satisfy the minimum 10% deposit.
As you know, that kind of loot doesn’t just magically assemble itself in your bank account - it takes years of graft, buckets of dedication and countless afternoons spent scouring the discount section of Aldi.
But there is another option. If you’re prepared to buddy up with friends to buy a place together, you can reduce the investment needed and find yourself with one foot on the property ladder much faster than you think.
Today we’re going to examine the pros and cons of buying a property with friends and discover if it’s a wise idea for your current stage in life.
The Pros of Owning a Property with Friends:
There’s three main benefits (aside from the joy of stealing their milk) that come with investing in property with your friends, they are as follows.
Easier Mortgage Qualification
Obviously one of the largest benefits of buying a property with friends is that you can pool resources to qualify for a mortgage without spending a number of years living in strict economical restraint.
To illustrate – as mentioned in the intro, the average house price is €263,000 and requires a 10% deposit.
That means if you have 5 friends, each of you will need to contribute €5,200 to cover the deposit.
You can that sum by simply saving €50 every week for a period of two years. That sure seems much more achievable than going it alone.
As a property owner, the costs of utilities, maintenance, and repairs can quickly add up.
With friends as co-owners, splitting these costs evenly means nobody has to eat Pot Noodle for a month if the roof unexpectedly starts leaking.
Splitting expenses puts you in a stronger financial position because when monthly bills aren’t emptying your bank account, you have extra cash to build your savings or pay off debts.
Home Equity Gains
Equity is the difference between your property’s value and what you owe the bank.
The longer you and your friends make your mortgage repayments, the more equity each of you could gain.
At some point in the future you’ll probably part ways and unlike renting, homeownership allows you to walk away with cash in your pocket if the property price has increased.
You can use this equity to put down a deposit on your own place should you wish to do that.
The Drawbacks of Owning a Property with Friends:
Buying a property together can be great, but it’s not a decision you should jump into. As with most things in life, there’re always certain drawbacks you need to think about.
It’s Difficult to Move
Disputes between friends can happen. And while they’re not pretty under normal circumstances, they’re a horror show when there’s more than one name on the mortgage documents.
If your group falls out with each other, they can’t just pack up and leave because they’re still financially responsible for the loan repayments.
To break ties, you’ll have to either sell the property or refinance it in the other’s names.
It can take several months to sell and there’s no guarantee that lenders will approve a new loan under the new circumstances. This leaves fighting parties stuck in close proximity with one another which is unpleasant, to say the least.
Your Credit Score Can Take A Hit
While we all start with the best of intentions to pay our share on time, things like a job loss or an unexpected illness can strike at any time.
If one party isn’t able to keep up the payments you may get flagged as high-risk borrowers by lenders, even though you’ve been diligent as an individual.
It’s kind of like hanging out with the wrong crowd as a kid - even when you grow up it’s hard to shake the impression people have of you.
And in this scenario, it really matters because it’ll likely affect your ability to access finance in the future.
Buying a house with friends offers lots of benefits. It’s easier to qualify for a mortgage, and you get to share all the monthly expenses including utilities, maintenance/repair costs, and mortgage payments. And, unlike renting, you get to build equity as you pay down the loan.
But there are challenges that come with something as big as this, and it’s important not to rush the decision No matter how well acquainted you are, it’s wise is to draw up a contract outlining the type of ownership and other responsibilities such as how you’ll pay for ongoing expenses and what’ll happen in the event of a dispute.
Only once you’ve done your homework and weighed up the pros and cons - go ahead and make the best decision for you. Just make sure everyone is onboard before taking the plunge.