Investing in Property with a Friend

Have you ever heard the expression, ‘no friends in business’? It’s an oldie but a goodie.

This is the attitude you should bring when considering buying property with a friend.

Many good friendships have gone under the bus, and lots of people have taken a bullet to their credit rating by not giving this decision adequate thought.

So, what are the risks involved with co-ownership, especially when you purchase with a friend?

What if one wants to sell?

One of the biggest problems with co-ownership is when one owner decides they want to sell the property, but the other owners don’t agree.

This often ends up in court, and the process can be costly and upsetting for everyone. And needless to say – the friendship probably won’t survive.

Buying could be harder in the future.

It might seem like the dream scenario to invest now with your best friend.

But if you decide in a few years to purchase a home to live in, the lender will assess your financial commitments based on the whole loan for the first property, not just the portion that you agreed to cover.

This could make it very difficult for you to get another loan.

You could be left holding the baby.

If something happens and your friend is unable to make their repayments, you could be left in the difficult situation of repaying the entire loan by yourself.

Coupled with your other living expenses, you might not be in a position to cover the whole amount yourself.

But there are some ways that you can reduce the risk, if you are keen to purchase property with a friend.

  1. Put a legal will in place. It’s important to make arrangements for what will happen to your assets if you pass away or become incapacitated.
  2. Draw up a co-ownership agreement. If you can think about any issues that might possibly come up in the future, and have an agreement in place to solve them, you’re less likely to wind up in court trying to work things out.
  3. Choose the right structure – tenants in common, or joint tenants. Tenants in common can own a different portion of the property, and they need to specify in their will who will inherit their portion if they die. Joint tenants jointly and equally own the property, and if one person dies, their share automatically goes to the other(s) regardless of the instructions in their will.
  4. Choose the right person. It’s important to discuss your financial goals and values before you enter into this sort of arrangement. You need to feel comfortable knowing that your friend will be financially secure enough to keep up their end of the bargain – otherwise you might be left trying to cover the repayments alone.

It’s important to think about your own relationships as well, if your partner is keen for you to buy a house together next year, you might want to think about how this first investment might impact your borrowing power.

 

Selling your House

Because selling your home in record time takes some elbow grease.

How far should you go when presenting your home for sale? Do you really have to get rid of all your family photos? Who has the time to bake a fresh batch of cookies in time for every open house?

There are some things that make a huge difference to potential buyers, and some that will just give you a headache for no reason.

If you’re a bit unsure what you should do to make your property appealing to buyers, don’t worry – just follow these 5 simple steps.

Step 1: De-clutter

It’s time to cut down on some of those kids toys, and it might be a good idea to find a temporary home for your newspaper collection. Buyers are looking for space and comfort, and nothing says ‘this house is too small’ quite like an overflowing bookshelf.

Try packing away some of the items that you don’t use very often. If you don’t listen to your CD’s very often, load them onto your ipod and pack them into boxes. It’s amazing how much nicer a home can seem when it’s tidy and clutter-free.

Step 2: Fix any small issues

Do you need to replace any light bulbs? Are the doorhandles showing a lot of wear and tear? Perhaps your screen door is torn because the dog was trying to get outside. This is the time to fix all of those little things you never got around to. This will show potential buyers that you have maintained the home, and they won’t be worried about nasty surprises.

Step 3: Consider staging

Do you still have the couch that your Auntie passed down when you were leaving home? Whilst it shouldn’t matter what your furniture looks like – the truth is that it can make a difference. If your belongings are a little bit rough around the edges, consider hiring or borrowing some nicer items for a few weeks whilst your home is open for inspection.

Step 4: Clean, Clean, and clean some more

It’s not always easy to keep your home spotless – especially if you have small children. But nothing will scare away potential buyers faster than dirty underwear on the bedroom floor, or last night’s Bolognese splattered all around the kitchen.

If you don’t have the time to clean thoroughly before every open house, consider hiring a cleaner for this short period of time. By putting in the extra effort, you could be rewarded with a quick sale, or a better price.

Step 5: Neat and tidy

On the day of each open house, spend a few minutes making the beds (hotel-style if you can) and putting away any items that don’t need to be lying around. Run a cloth over the benches one last time, turn on the dishwasher, and consider taking your dirty washing with you if you don’t have time to get it washed and put away.

If you receive an offer on the house today, you’ll be glad you went the extra mile. If not, you can come home and relax knowing that the housework is already done!

Should you Upgrade your home ?

So, you’re thinking about upgrading your home. Maybe your kids are getting older now and it’s time to find a place with a big backyard.

Most new home owners will make the decision to upgrade before long – but for many young families, a lack of planning can spell disaster when upsizing the family home. Before you start shopping around for a real estate agent, take a few minutes to ask yourself a few simple questions.

Why do you want to move?

Be clear about your reasons for upgrading. Buying an enormous home won’t necessarily mean greater capital growth in the future. Sometimes the greatest growth is in the lower end of the market. If you want to upgrade simply to grow your property portfolio, consider purchasing an investment property instead.

Where do you want to be?

If you’re upgrading to give everyone some space, consider the area that you want to live in. You might be able to afford a much bigger home by moving an extra 15 minutes from the city. It all depends what sort of lifestyle you want to maintain.

What are the real costs?

Investigate all of the costs associated with upsizing your home. That means, not just the additional mortgage payments, but increased utility bills, perhaps a longer commute to work, more furniture to fill the additional space etc. It’s important to know exactly how much the move will cost you – not just the initial purchase.

What about interest rates?

Could you afford to borrow an extra $150,000 if the interest rates were 2% higher? Make sure you take into account some interest rate rises when you work out what you can afford to borrow. Although a lender might offer you the funds, that doesn’t mean that they know everything about your lifestyle and budget.

Will I change my lender?

You might take the opportunity to shop around for a better deal on a loan before you purchase your new property. It’s important to keep in mind though, there could be charges associated with paying out your current mortgage, and there will probably be some establishment fees involved in taking out a new loan. These fees should be part of your decision-making process.

It’s also important to ask your mortgage broker about Lenders Mortgage Insurance. LMI is generally payable when you borrow more than 80% of the purchase price. Depending on your purchase amount, LMI could add up to several thousand.

Did you answer all of the above questions, and still want to upgrade your home? Great! There’s nothing wrong with wanting to move on to greener pastures. But to avoid putting yourself under financial strain, it’s always important to do your homework.

 

Rentvesting – enter the property market without sacrificing your current lifestyle

As property prices continue to rise, purchasing in a centrally-located or sought-after area is getting out of reach for the average working millennial. Instead, many are opting to rent rather than buy as it means not having to compromise their inner city or beach side lifestyle. But for those who are still eager to enter the market, there is a way to get the best of both worlds.

Read more

How to get the biggest return on an investment property

When purchasing an investment property, there are several factors that could increase or reduce your potential return on investment. In this case it’s not just location, location, location.

When considering a property for investment purposes, the most important question to ask is ‘will be attractive to tenants?’.  But how do you know what will appeal to someone you’ve never met? Settling on a handful of locations is a good start. “Young families and couples are the ones that drive capital growth and so a location that is within a reasonable distance to schools, entertainment, transport, and an employment hub is one to look out for. Other ideal factors are a low vacancy rate and relatively high rental yield.

Although location plays a major role, it’s by no means the only defining factor. There is a mistruth a lot of people subscribe to when buying investment properties, which is to disregard the quality because you don’t have to live in it, but you do have to buy a homeowner quality property, because someone has to live in it. Also, when buying an investment property, you have to have an exit strategy, which will generally involve selling to homeowners as well as investors.

To get the most value, you need to think about the demographic of renters who are likely to be living in the area. You also have to match the property with the area. If you put a good quality, decent sized, one-bedroom apartment in the inner city, it would be a great investment, however if you put it 30km out, it wouldn’t garner as much interest.

When investing in any kind of property, be wary of any danger signs. One of the biggest mistakes Australians make is not knowing what their cash flow is. A poor cash flow is worse than paying too much for the property. It is vital to know how much your chosen property is going to cost after tax, every week after you settle. There’s no point in buying a top-quality property if it’s going to send you broke.

When looking to purchase an investment property, ensure the expert you are dealing with is actually an expert. And be wary of somebody who tells you that their way is the only way to invest. Do your homework and talk to several people for their opinion.

 

Tips for young property investors

It is possible for people to launch into the property investment market in their early twenties – in fact, this is a great time to start, when you are first launching into your career and don’t yet have any other financial responsibilities such as a family to support.

However, buying an investment property can never be an impulse decision – it takes self-discipline and applied knowledge to start building a profitable investment property portfolio. Read more

Moving house. Should you buy or sell first?

So, the time has come to upgrade your house. But should you buy first, or sell your existing place first? It’s a tough choice. Here are the key pros and cons.

Read more

Comparing commercial and residential property investment

If you are looking for a sound real estate investment, look beyond the typical two bedroom apartment and consider expanding your portfolio with a commercial property. There are three types of commercial property – office, retail and industrial.

There are some significant differences between investing in commercial and residential real estate, each with a potential positive or negative impact on your investment.

Read more

Moving house – some costs to consider

Finding a new home can be exciting and fun, however sometimes moving to a new house is the worst. It is one of the most disruptive, stressful and chaotic of life experiences. It can also be expensive. Here’s a list of some things you will need to consider when planning the move.

Packing

Put simply, you will always need more boxes than you think you will. It’s so much better to over-shoot the mark with this one. You can buy boxes cheaply from Bunnings. Unless you have been hoarding newspapers for the last few months, you will also need bubble wrap or butchers paper.

Cleaning

Moving is dirty. Both the old and new place will need a clean, including many of your items that were cleaned before they left your old house.

Removalists

If you’re looking to save as much money as possible, don’t hire removalists as it is usually the biggest expense in a move. However, they are also much quicker, a lot less stressful and will mean less physical exertion on your behalf.

Food

With everything packed away in boxes, takeaway is the only option for over a week. Add to that the moving-day thank you when you then shout your family and friends who helped you with the move.

Other Random stuff

  • Reconnecting the internet (even the same provider)
  • Taking an annual leave day.
  • Buying all the new nice things

– Domain

Overcapitalising: What it is and how to avoid it

As a home owner or property investor, you may have heard the term ‘overcapitalising’. But what exactly is it and why is it considered bad?

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