How to buy a first home with friends and family

PHOTO: Photo: RNZ / Claire Eastham-Farrelly

Unable to buy their first home alone, some New Zealanders are teaming up with family and friends to enter the property market.

Homeowners share their experiences of co-ownership, while experts advise what to watch out for in this sort of arrangement.

Chris, 25, works in customer service and lives in Tauranga. A good saver, he had enough for a deposit but didn’t earn enough to service a loan by himself. As a single man, he didn’t have a partner to team up with so thought: why not go in with a friend?

“My friend and I found ourselves being stuck in Tauranga, job-wise, so I just said to him ‘why don’t we do it, if we pull together what we have we can probably just do it – it’s the first time, not forever, and if either of us want to leave we can’,” Chris said.

“It felt very much like a now-or-never situation really.”

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Within weeks they were talking to a broker, and after a few months – and dozens of open homes – they bought a house. They moved in mid-2021.

“It’s more about the person you join with. So far things are great, and I can trust my co-owner and he can trust me, but you really need to make sure they’re the right person,” Chris said.

Chris had met his co-owner at university seven years earlier and they had become close friends. Before buying a house together, they had several meetings to discuss their financial history, how each other lived and what they wanted in a property.

They got a property sharing agreement written up, which covered multiple scenarios.

“We tried to cross all the hard things off so if any of these things happen, we’ve got a document we can refer to.”

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Clearstone Legal principal Debra Barron said agreements covered how the loan or loans would be repaid, who would pay for maintenance, what happened if renovations were needed, what would happen if one party died, and what happened if one party wanted to sell.

“It can’t cover every scenario, but it can provide a mechanism so that if someone is not happy with the sharing of the property, they can say ‘well, I’m giving notice to sell’,” Barron said.

Typically, if one party wanted to sell and the other did not want to, then the other co-owner or co-owners would have the opportunity to buy the person’s share, Barron said.

If they could not buy them out, then the person who wanted to sell then had an opportunity to buy the other co-owner or co-owners out. If they could not or did not want to, the house went on the market.

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It is up to the buyers how they service the loan – perhaps they all have their own loans or contribute to one loan. Some may be able to pay off their loans faster than others, while some may have bigger loans depending how much they contributed to the deposit.

That was the case for Auckland woman Tamara, who bought her first home with her partner and her partner’s brother in 2012.

The brother was 20 at the time and had been working full-time so had a deposit but couldn’t service a loan by himself. Tamara and her partner were fresh out of university and didn’t have savings but had good jobs and could help service a loan.

The three of them bought a place with two properties on it – one to live in, and the other a source of income, and they’ve never looked back. Buying before the property boom, they were able to capitalise on their equity growth and within years purchased two more properties together.

Tamara and her partner have since been able to buy the brother out of the three homes, and he is now looking to purchase a house by himself.

Knowing what a difference it made for them, Tamara encouraged her own three brothers to do similar – she even made a PowerPoint presentation.

“They were all in their early 20’s, renting at the time and had no means to buy individually,” she said.

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The three of them and one of their partners purchased their first home together three years ago.

“They owned it for two years then were approached by a developer who wanted to develop the site, so they sold it for a good profit, and each walked away with enough to buy their own houses individually, which they’ve done.”

Both Tamara and Chris are clear that if they didn’t purchase with friends and family, it would have been years before they were able to buy their own place, if at all. For Tamara, buying early with family has meant she has been able to go on and buy more properties, and plans to retire early.

For Chris, it’s meant his dreams of home-ownership came true.

“I think I’d have to be quite comfortably earning six figures to be able to own even a basic property on my own. I don’t think I could do it on my own – that’s just the reality.”

The experts’ advice

While there are many success stories, not all co-ownership arrangements end well.

Sometimes one party wanted to sell, and the other did not, or there were misunderstandings, Clearstone Legal principal Barron said.

For example, Barron has seen several cases where a couple has bought with one of their parents, who provided the “lion’s share” of the costs but end up with the smallest room in the house.

“When it gets fractured it’s really awful, it breaks apart families if it doesn’t go very well.”

Barron also warned people to be aware of capital gains tax should one co-owner want to move out while the other remained living in the house.

Let’s Talk! mortgage advisor Sarah Bloxham advises her clients to commit to living together for at least three years. That way, they can settle in and have a clear idea of the minimum time their arrangement will last.

She said purchasing with friends and family was becoming increasingly popular, and often recommended it to clients who could not get a loan by themselves.

Bloxham talks to her clients about all the what-ifs – what if you get a partner and they want to move in, how will you split bills, what if renovations are needed, what if you get a flatmate – how will that money be split? She recommends they hold monthly meetings to discuss any concerns.

Sometimes she is approached by people who want to buy their own home but their partner doesn’t want to.

“And I always go back saying ‘you’ve got to be on the same page, otherwise you need to look for a friend to buy with and then have a relationship agreement, because you’re getting on with doing it. You never want to look back and go ‘I wish I had’, because what happens in five years the partner goes ‘I’m ready now’, obviously lending changes so much, the house prices change so much and it’s very hard.”