The buying power of more than one

Author: Alexandra Roginski and Anne Marie Gasbarro
Date: 25/03/2007
Words: 1517
Source: SAG

Publication: The Sunday Age
Section: Domain
Page: 4

Friends and relatives are pooling resources to take advantage of good property prices - but there are pitfalls to avoid. Alexandra Roginski reports.

SHOPPING with friends isn't always about riffling through the sale racks in Bridge Road. With some Melbourne suburbs more than trebling in value over the past decade, young home buyers are increasingly getting together and perusing the auction pages for a home they can share.

"Partnering with friends or siblings is a savvy response by borrowers who want to compete on a level playing field with married couples, rather than wait for affordability to improve or for Mr or Mrs Right to come along," says Mark Bouris, chairman of Wizard home loans.

"As prices continue to move upwards and young people wait longer to get married, I believe the prevalence of friends and family buying together will continue to increase dramatically."

A 2006 Wizard survey of around 250 prospective purchasers found that 35 per cent were toying with the idea of buying in syndicate because they felt priced out of the market.

Trendy first-home buyer tidbits such as retro apartments in South Yarra, or townhouses and period properties in Flemington and Yarraville, today often demand pragmatism from young purchasers.

"Rather than continue to pay rent in a one-bedroom flat in Prahran, why not get two or three friends and buy a house in Yarraville or Footscray or Seddon?" asks Craig Stephens, director of Jas H. Stephens, explaining the mentality that is attracting joint purchasers to inner-western Melbourne.

Notably, the agency's average sale price of $366,783 for the area still encapsulates spacious, free-standing houses.

In comparison to other cheap options such as house-and-land packages in outer Melbourne, joint purchase closer to the centre also enables young home owners to maintain a leisurely lifestyle - a benefit commonly considered to be prized by the generation Y age group.

"I get people saying to me at an auction, 'We could have gone more, but we didn't want to give up our Saturday nights going down to Lygon Street, or our midweek movies'. They don't want to be that geared up that they sit at home watching DVDs and eating popcorn," says Ryan Currie, spokesman for the Thomson Group.

Mr Currie's office operates in the heart of the once dingy inner-north-west, which today attracts first-home buyers to the townhouses of Flemington and Kensington, and which offers lower entry points than established suburbs such as neighbouring Essendon, where the median house price lingered at $620,000 in the September quarter.

Unlike outer Melbourne, these areas also continue to experience rapid capital growth, meaning that joint purchasers can feel confident they'll come out on top even if they choose to sell after a few years.

But as with any other business arrangement, the financial pressures of real estate can tear friendships apart, and it pays to plan carefully.

"It's surprising how many listings we get of people going their separate ways after two or three years of giving it a go," says Mr Stephens of his vendors, who include the unhappy class of friends or relatives who have fallen out.

In the early glow of co-purchasing friendship, many joint purchasers ignore the potential for future storm clouds. Experts recommend drafting a legal agreement to cover any financial and domestic responsibilities, with the crucial inclusion of an exit clause for the worst-case scenario.

"Certainly, there is some resistance to it. All you can do is tell people that it's a good idea," says Anne Marie Gasbarro, partner in charge of property with McKean and Park solicitors. She drafts three or four "co-owners agreements" each year. These may not deter an aggravated lender from selling the property, but they can be used as evidence during subsequent legal proceedings where one of the owners hasn't met their end of the bargain.

Most importantly, co-purchasers need to decide whether they will be listed as what property law terms "joint tenants" or "tenants in common".

Under a joint tenancy, if one owner dies, the surviving owners automatically receive that share.

In a tenancy in common, the preferred model for joint purchasers, owners hold distinct shares. They can designate ownership unequally (such as a 60 per cent/40 per cent split), and are also able to dispose of their interests individually.

"Unfortunately, I find that if somebody's acting for them, they're sometimes not fully appraised of what that means to be registered jointly, and I certainly find a lot of people then realise and we have to do a transfer so they are tenants in common," says Ms Gasbarro.

"There's nothing they can do in terms of registering that transfer . . . unless of course they pay extra stamp duty. That's a thing to be wary of before they even get to the contracting stage."

Co-owners should also consider whether they will occupy the property or use it as an investment.

If not all the parties choose to live there, will the others be reimbursed? Ms Gasbarro adds that all parties should amend their wills to include the property.

From an emotional perspective, the strength of the friendship between potential co-owners should also be closely considered before purchase, with trust being the number one factor.

"Evaluate, take a step back, and ask: what is my relationship with this person? Is it going to last the distance and are we going to be able to resolve any issues that come up in an amicable and reasonable manner?" says Muriel Cooper, senior psychologist with Life Solutions.

She, too, recommends written agreements. Particularly when the parties are cohabiting, these can regulate division of bills, housework, and any joint household accounts.

Where conflict becomes irreconcilable, Ms Cooper warns against abrupt sale before the property has experienced sufficient capital growth, suggesting instead that the owners reconsider it as an investment.

In the case of less final rifts, she recommends broaching the issue as soon as it arises. The aggrieved friend should propose a constructive solution, and the owners could even seek outside help. Of all the potential outcomes young home buyers sign up for when they bunk in together, counselling is probably one of the less dramatic end-points.

When friends buy together

THE Casey sisters and their friend Danielle Barbetta spent a year hunting for investment properties in the inner west before deciding on a three-bedroom house in West Footscray late last year.

"My sister and I always thought we'd buy a house together," Lauren Casey explains.

"It's so hard to do it by yourself, and Danielle, my best friend, lives with my sister. Because she's got two older brothers who are married and stuff, we just asked her if she wanted to be involved."

The modern weatherboard house, for which they paid about $330,000, has had a recent renovation. The owners hope to add an extra television antenna and power points before offering it for rent.

Until a lawyer finalises an agreement, Lauren Casey has drafted a rough document setting out the division of expenses and stating that, after three years, the trio will decide whether to keep the property.

If one of them wants to pull out before then, they will consider whether she will be reimbursed based on market value, or on original price.

"We wanted to get into the market sooner rather than later together, because we couldn't do it individually," Ms Casey says.

Siblings share the load

BELINDA WALLACE bought a two-bedroom investment property in Toorak four years ago. But after years of renting, the 26-year-old yearned to also own a calm retreat from her work as a Qantas pilot.

Unwilling to disrupt her tenants, she began considering alternative purchase options for a second property with her brother, James.

"I couldn't afford to go and buy one outright. It helped me having the half from James," she says. "For my brother financially, he couldn't afford to go out and buy on his own as well, so it seemed logical if we wanted to get where we wanted to be, and to get a nice place."

After months of inspecting poky apartments, Belinda and James, 29, stumbled upon the South Yarra apartment of tennis player Richard Fromberg, and bought it before auction in December through Hocking Stuart, South Yarra, for just under $500,000.

The siblings took out separate loans and, while there is no written agreement, have established that when they move in James will cover electrical goods, while Belinda tends to the interior.

"It's so nice with family because you don't care about them using stuff, and it's very much 'what's yours is mine'," she says.

Tips for joint ownership

? Determine before purchase whether you buy as tenants in common or as joint tenants. Under a joint tenancy, the share of a deceased co-owner will automatically revert to surviving owners.

? Include the property share in your will. If you don't have a will, make one.

? Decide whether you will occupy the property or rent it out. If only one party lives there, how will they reimburse the others?

? Specify any division of home responsibilities. Often one party may pay more of the mortgage while the others cover home maintenance.

? Don't be scared to put your agreement in writing. -- ANNE MARIE GASBARRO