Adapted from the MortgageMax monthly newsletter fro August 2019
Buying a property with your best friend may sound like a slice of happiness – you get on to the property ladder faster and for less than you thought and you have someone with whom to share the electricity bill and home maintenance tasks like mowing the lawn or painting the roof.
However, there are various practicalities to consider before signing on the dotted line so that your friendship remains intact and that neither of you ends up out of pocket when the times come to sell the property.
The recent General Household Survey (GHS) conducted by StatsSA revealed that more than 50% of adult South Africans are single, and many people just can’t afford to buy a property on their own, which is why buying with friends or family members has become more popular.
And banks do offer joint home loan packages, but before you opt to acquire property with a friend you need to have an honest discussion to establish the boundaries and expectations of what is essentially a business relationship – what do you each want to get out of the purchase; how will you fund it; how long do both or either of you plan to live in the home and what happens if one of you wants to exit the relationship before the other one is ready to move on?
Next, it is a good idea to put everything you have agreed into a legal co-ownership agreement drawn up by your attorney. You may also need to change your will and take out special life insurance to cover your obligations should you die while the agreement is in force.
The third step is to seek the assistance of a reputable bond origination company like De Mink Property Finance Mortgage Max to secure prequalification for a home loan before you go house-hunting. This will ensure that as potential home-owners, you and your purchasing partners know how much you can afford to spend and how much cash you will need to cover any deposit required, your bond registration fee and the costs of transfer. Pre-qualification also signals to sellers that you are motivated buyers who are able to finance the purchase and thus puts you in a stronger position when it comes to negotiating price.
Then when you have looked at properties and found the one you would like to buy, an originator like De Mink Property Finance Mortgage Max will also ensure that you obtain your home loan at the very best interest rate possible, which is important because it can make a really significant difference to the cumulative cost of a property over the lifetime of the loan – and to the “profit” you will make should you decide to sell the property. Currently, the average variation between the best and worst interest rates being offered on the applications that we submit is 0,5%, which may not seem like much of a difference, but on a 20-year bond of R1,5 million, for example, it translates into a potential saving of more than R120 000 in interest, plus a total of about R6000 a year off the monthly bond instalments.”
However, co-ownership responsibilities don’t end there. Such arrangements also demand meticulous record-keeping to track each person’s contribution to the joint venture, even if your co-buyer is a romantic partner. These should include the deposit and transfer costs as well as ongoing payments like the monthly bond instalments, any maintenance costs and the utility bills. You might also have decided to split your monthly costs differently, with one partner paying the bond instalment and one covering the household ‘running costs’ and it is very important to keep exact track of these to avoid any dispute later on about how the proceeds of any sale should be shared.
And finally, you need to remember that everyone involved in the purchase will be legally responsible for the bond repayments, so that if one person defaults, the others in the partnership will be liable to cover their share or risk losing the property – which is one of the key reasons why there needs to be a high level of trust in any co-ownership arrangement