Parcels of paradise

Author: KERRIE O'BRIEN
Date: 20/01/2007
Words: 1743
Source: AGE

Publication: The Age
Section: Domain
Page: 4

Sharing ownership of a holiday house can be a joy, or something else entirely. By Kerrie O'Brien.

DO YOU hope to own a holiday house one day? Love the idea of a weekender but despair at the ever-increasing prices, particularly for anywhere reasonably close to the city? Around the state, along the coast and in the country, people are realising their dreams by pooling their resources and buying with friends or extended family.

As the cost of property is ever-increasing, the idea of investing in a second house can seem unattainable - particularly if that investment is based on lifestyle wants and needs rather than designed to generate income. But rather than forsake the idea altogether, Australians are increasingly joining forces with like-minded people and sharing the cost.

Neil Laws is a principal at Jens Gaunt Real Estate, Queenscliff, and vice-president of the Real Estate Institute of Victoria. He says that while people buying a property jointly with friends or other family members is not the norm, it does happen. He cites as an example an upcoming auction in Point Lonsdale, where four women (sisters and sisters-in-law) who have owned together for a number of years are selling a house.

The key factor influencing people to buy with friends or family is the simple dollar sum involved. Around Queenscliff, Mr Laws says you're looking at $500,000 almost as a minimum to get in, so it's a substantial investment.

"Gone are the days when you go down the street here to buy the paper and come back with a new house," he says with a laugh.

He also knows of two couples who have bought together as an investment.

"It's a bit like a timeshare idea - the purchase price, stamp duty and any other costs are all shared," he says.

Apart from the advantages associated with sharing costs - both initially and longer term - there are other benefits.

Mr Laws says: "The other pro is that if you buy with a few people, the likelihood is you'll use it more often."

But it's not a decision to be taken lightly. As with any property purchase, it is a significant financial decision and should be carefully analysed before committing your hard-earned cash.

"You need to look at why you're buying," he says. "Is it to have a place to visit on the coast? If so, fine. If it's as an investment, then maybe it's not such a good idea, as you'll also have to share the returns."

According to Mr Laws, the downside of buying jointly is potentially greater than the upside.

He says there is potential for conflict between owners on many fronts - such as when the house is available for rent and when it's not. He's seen that sort of issue emerge as a problem. "For example, the weekend of the Queenscliff Music Festival, you can make lots of money in one weekend by renting out the house. But one party might be keen to use the house at that time."

It's imperative to have a long-term plan. Mr Laws suggests people look at buying for a minimum of five or six years, and should set that out in a written agreement.

Above all, he adds, all parties need to have the same view and get correct legal and financial advice.

"It needs to be one thing or the other - either a holiday place or a rental. Set things out in the beginning and save a lot of potential heartache. You've got to be a bit sensitive about it, but you might suggest getting a formal agreement in place, something like a pre-nuptial agreement.

"After all, you've got to be careful about who you're getting into bed with, figuratively speaking."

Nick Spanninga is a director with Harwood Andrews Lawyers, based in Geelong. He concurs with Mr Laws about the practicalities of joint property ownership.

"I have some clients with a number of mixed business and pleasure properties that are owned by several families very successfully," he says.

"I'm afraid, however, that this is the exception rather than the rule. In my experience, these arrangements start out very well, but problems tend to develop quite early on when couples become aggrieved by, for example, the over-use of the property by the other couple, or turning up at the same time during peak periods, disputes over who gets Christmas this year, etc."

Mr Spanninga says most people have heard warnings about mixing business with personal relationships and the damage it can do to those relationships. He believes it's important to heed those warnings.

"While a holiday home is being purchased for pleasure, it's also an investment and much like a business due to possible income from holiday lettings."

The lawyer says anyone jointly owning a property is in a partnership. While there is no legal requirement to have an agreement governing the terms of the relationship, a written co-ownership agreement is a must to set out some of the rights and obligations of the co-owners.

"Usually these arrangements come about with the best of intentions and in the spirit of co-operation, but, like a marriage, many will fail, and the absence of some form of governing agreement to resolve disputes will leave the parties in a much more difficult position," he says.

Mr Spanninga says one advantage of such an agreement is that it will usually include a dispute-resolution mechanism. "Giving the parties a method to follow when there is a dispute can help diffuse the problem and help focus them on resolving the problem, if their agreement requires them to make an attempt at resolution before resorting to other more drastic measures such as legal action," he says.

Such an agreement can be prepared by a lawyer and would cost about $1000 for a simple agreement between two couples with no special requirements. That might increase to $2000 or more for very complex arrangements.

Mr Spanninga says a purchase can be structured in a number of ways, as can the financing arrangements of the parties.

He argues that it is better if the holiday home itself is not subject to a mortgage, because once money is borrowed by either or both couples against the holiday home, each couple is exposed to financial risk.

"If the parties need to borrow for the purchase, the preference is that they each borrow against some other asset such as their own home and leave the co-owned asset unencumbered," he says.

There are other possible mechanisms of ownership, and some allow easier movement of the interests in the property without transferring the title.

This is the case with having a company own the property.

A common method of ownership between two couples is to have each couple own a half share jointly between the couple, but as tenants in common between the couples.

Practicalities beyond the legals must also be factored in. How to deal with ongoing costs, who will be responsible for maintenance, allocating time at the property fairly between all parties, whether or not spending time at the house together is an option - all need to be considered.

But it's not all bad news and hard work. Ask the loads of people out there reaping the benefits of taking the plunge along with their friends.

Once the legal and logistical arrangements are discussed and sorted, you and your mates can simply sit back, pour yourselves a drink, and take in the view.

Sharing a house at the beach

MELBOURNE-BASED town planner Zoran Jovanovski, 30, bought a block of land in Ocean Grove three years ago, along with two of his cousins. "It was probably one of those ideas born over a couple of beers at the pub," he says with a laugh.

Jovanovski is the youngest of the three and he grew up with them, spending a lot of time with their family. "We all had the idea of buying a house together, which was just an idea for quite a while."

His cousin was looking at knocking down a house on a block he owned in Yarraville - a weatherboard California bungalow. Jovanovski's town-planning background and his father's building experience led them to wonder about the cost of relocating the house rather than demolishing it.

All parties agreed they preferred the west coast rather than the east, and looked at places such as Torquay and Jan Juc. They ended up finding a corner site they liked in Ocean Grove.

To move the Yarraville house cost between $25,000 and $27,000. They used the frame of the three-bedroom house as the foundation for the beach house. "Once it was there, we decided to put in a spa, another bedroom and make it more like a holiday house.

"The main reason for all of us getting involved was the expense - it allowed us to get a place at the beach without it costing us an arm and a leg," he says.

Finance-wise, the three wanted equal shares, and each put in $100,000. Any ongoing bills are paid in equal amounts. They share the house with other family and friends.

Jovanovski says one person tends to use it more than the others, but that also depends on the season. "In summer we'd use it once a week, but in winter it could go a month or two without anyone using it."

The cousins are trying to sell the house at the moment. "My dad's a builder, and my cousins and I have done a little bit of improvement to the place . . . Making money wasn't the overriding consideration," he says. "If we could make some money on top of having it, that would be a bonus.

"The main thing was the experience and the enjoyment of having a holiday house."

He says they didn't opt to let the property out, as they didn't want to complicate things. "That would've meant getting other insurances or potentially getting an agent involved."

Jovanovski says the prospect of buying with others isn't for everyone, but it has worked for him.

"Without doing it this way and all getting involved, we wouldn't have had a chance to do it. Generally, I would say it's positive. Just make sure you have a clear vision and similar expectations. The pressure can't be on other people, whether that's financial or physically, work-wise.

"We knew from the start we'd give it a few years and see how we went - it depends where you're at in your life."

His final advice is simple: "Lay out the ground rules from the start."