IP with a friend

Hello all at InvestEd

Im new to this Forum and relatively new to the whole investing thing, so im sure to ask many a stupid question

Ok, so awhile a friend and i began putting money away with the idea of buying an IP. We currently have about $30k, and will have about $50k at the end of next year. We are thinking of buying early in 2011, as we will have both finished studying and (hopfully) have better paying jobs than our current ones (barely above slave labour ).

im only at the beginning stages of doing all my homework, but my main question at the moment is, assuming all goes well and my friend and i purchase an IP in the $250-300K range, how would i go about using the Equity in the IP for a deposit (or part of) on a PPOR for myself and my girlfriend a year or two after that? im not sure how it would work with the IP in both me and my friends name.

like i said, im still at newbie stages, all i have really done so far is teach myself how to save money

is there anyone who has bough an IP with friends? especially if they don't already own a PPOR. how has it turned out? sucess? disaster? what would be the best way to structure this approach?

....yep, i thinks thats enough newbie questions for now

cheers

Jamus

Welcome to the forum.

Let me ask you a question.
Why buy together with your friend?

When buying with someone else you are also liable for his part of the loan and this reduces your overall borrowing capacity.
Ok, buying an IP helps you from the serviceability point of view but you could overcome this issue by buying a cheaper property.

Is he/she a good friend?
It's best not to have such financial deallings with friends and particularly those who are yet to start a family because later on their partner could get in the way and a deal could easily turn sour and it could also end up costing your friendship.

IMHO

Yes he is a good friend, and i understand that this kind of thing can put strain on friendships. thats why if we do end up buying IP together i want to get it right, hence asking InvestEd for advice.

the main reason for going together is affordability, Shared ongoing costs like loan repayments, maintenance and upkeep costs, property management fees etc, as well as saving for the deposit.

i read somewhere that leanders will allow you to finance each share of the property independently. Where other co-owners have no obligation to pay a mortgage over another owner’s share of the property.

I haven't really heard that talked about in many places, is it common? would this set up still reduce borrowing capacity?

As far as I know they are both liable for the whole mortgage


If you consider that couples are buying a property in 2 names then it's probably very common


As far as I know it does but check with a mortgage broker

Hi Jamus and welcome. Personally I wouldn't do it, but if you are sure, then I would say as it gets closer speak to a solicitor about structuring it. talk to your friend about what you both are planning for your futures...does he have a partnet too? will he want to buy a ppor soon? How does he feel about you using the equity? What will be the options if one of you wants out?

If you can sort all these questions out BEFORE you sign anything so that you both know where you stand in the future then it just might work out. think of all the worst case scenarios before the event and make decisions on how you would proceed. If you can't agree on these things now then maybe give it a miss to preserve your friendship.

My personal property investing rules are:Never invest with family or friends. Never rent to family or friends and PARTICULARLY friends of family/family of friends..recipe for disaster IMHO

Good luck...keep us posted.

I agree, although there could be exemptions to the rule.
For example, I do rent to family at market rates and because they are reliable I also self manage the property

Hi Jamus, you can also do a search on the Somersoft property forum (Somersoft Property Investment Forums). Yours is a common question.
I agree with joanmc & Billv that investing with family/friends can go badly wrong.
If you really want a joint investment then consider setting up a 'unit trust', where each of the investors has a separate holding. Do a LOT of research!

[There are no stupid questions, but use the search function often :-) ]

Very old quote: The only ship that's certain to sink is a partnership

Hi Jamus

Nigel from this forum wrote a pretty thorough response to just this type of question some time ago. Do a search for posts under his name and you'll be sure to find it. Include the words joint liability and happy reading!

This is not advice but what I would do. I wouldn't buy another investment property, ever & if I did, I would certainly not buy it with a friend.

i have a friend who is in this situation at the moment. he bought a house near mt buller with friend #2 as a sort of joint holiday house. 3 years and 1 economic crisis later, friend #2 is desperate for cash and needs to sell his share. friend #1 can't really afford to take on the extra debt, but is in love with the place and really really doesn't want to sell. issue would be slightly different with an IP but you can see how issues can easily occur when families have different goals and need money at certain times.

my advice would be to buy a cheaper property and buy it on your own.