Hi all
Are there any limitations in purchasing say an $800,000 property (with a $250,000 deposit) with 3 other people? i.e can 4 people sign up for a $550,000 mortgage? My wife and I along with our aunty and uncle are seriously considering buying a beautiful large home in the inner city, and just quartering the repayments. Thus living close to our work places, in a great location and then we will just quarter (or half since we are 2 married couples) the profit when we sell?
Does anyone see any problems with this? and apart from the obvious (sharing a house) why aren't other people doing the same? or are they??
any feedback is appreciated!
Cheers
There are no issues at all as long as each party understands that they are not only liaible for 1/4 of the loan but in fact they are Jointly and Severably liable for the entire loan.
I have had a number of clients do exactly what you have suggested and we can split the loan into 4 different amounts each with their own loan name.
Richard Taylor | Australia's leading private lender
You should put in an exit strategy!
What if their situtaion changes and wants out? All well and good but you must think of worst case scenarioThanks Richard for your information. Another question. If we say want to borrow $600,000 between us 2 married couples, can we just borrow $600,000 and then halve the repayments on this figure? or would we be forced to take out 2 x $300,000 loans and thus make repayments on this figure? As I think the first option would mean lower repayments.
You can have one big loan or 4 little ones – It doesn't really matter to the bank. Just be aware that if the other 3 people don't pay the 4th one must. each is liable for the whole debt – which is risky legally. It will also affect future borrowings as when going for a new loan the bank will asses each person as owing the full debt.
Also consider or try to anticipate things that can arise in the future. Like 1 couple wants to sell, but the other doesn't. The remaining couple may not have the ability to buy out the others, so what do you do. Or if your property doubles in value and all that equity is sitting there – do you agree to access the equity, let the other couple take out a LOC, or use the property as security for a new property in their names only etc. What is one of them goes bankrupt, or they divorce etc. Planning what you can do now can save arguments later.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Great advice Terry, thanks.
I agree with Terry.
You've said you will share "the profit" but what if you need to sell at a time where the value has got down? Accept to share the loss?
Even if it is the other couple who want to sell, and you don't?What happens eg if one of them dies? Do you keep paying 1/4's and the other remining partner has to pay 1/2? Could they afford that? Do they have life insurance to coevr that? (And do you?)
How long can you live together before there is a problem? What would you do then?
Having said all that, it may work well for you all. Just think through all the possible complications in advance.
quickchick
I think we will definitely sit down and agree on an exit strategy, based on all the scenarios discussed above, plus more…
Yes death too needs to bne considered.. Depending on how the purchase is set up one person may leave their share to someone you don't like (tenants in common). What happens then!
If you have the ownership as joint tenants then the property doesn't form part of the person's will at all, so if one person dies their share goes to the remaining 3. That will mean 1 couple will have 2 thrids ownership and more power maybe.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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