My partner and I are lesbians and thus (on paper) all our finances are seperate. Because our relationship is no legally recognised this gives us some financial advantages when it comes to tax/family tax benifit for my kids. Thus, we have property in each of our names but have not purchased any jointly. We are thinking of purchasing a property as tennants in common so that (again on paper) we are seperate entities. However, we have some very close friends who wish to purchase with us as tennants in common. Although we trust our friends very much – what realy are the risks if they can’t meet their repayments or suddenly wish to get rid of their share. In the worse case scenario and they went bankrupt – what exactly would happen to the property and what would our options be if for some reason we couldn’t afford to buy them out???
Hi Dr Frank,
As I understand, the risks are basically the same as most other lenders in that if the borrowers cannot repay the loan then the bank can repossess the property and sell it within three months at whatever the market is willing to pay. This tends to bite on the high end of the residential and commercial property markets where the no. of buyers is much less.
From a personal strain perspective the risks of these syndicates are that if one or more people want to get out and the others cannot afford to pay them out at that time, also that if there are any major issues with the property – eg tennants trash it and insurance leaves a gap of a few thousand dollars – how do you split the bill? Contracts between the parties can overcome some of these issues.
From a lenders perspective you will each be jointly and severally liable for the whole debt, ie if you own 25% of a $500,000 debt on IP1 and you personally want go to a different lender for another loan on IP2, then lender 2 will class you as being responsible for the full %500,000 debt on IP1. This one cannot be avoided except by basically lying which is never a good strategy.
There are more complex strategies around like buying through companies etc and properly established syndicates are very successful particularly for short term debt eg to develop and sell an apartment block. They are basically dreadful for long term personal ownership for the reasons above.
Hope I haven’t put you off – good luck!
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Mel
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