When you and your best friend are on holiday with your families and everyone is getting along famously, it might seem like a great idea to buy a holiday home together as a way to guarantee a repeat performance of the good times every year.
But is it really? Shaun Rademeyer, CEO of BetterLife Home Loans says that on the plus side, it is certainly cheaper to buy a leisure home when you only have to come up with half the cost.
“On the other hand, though, you will then only be a half-owner – and what guarantee do you have that your friendship with your purchasing partner will stand the rest of time?”
Some positives to consider, he suggests, are the following:
- Buying with a friend means you may be able to get a better or a bigger property – closer to the beach, for example, or a house instead of an apartment;
- You’ll have someone to share the maintenance and operating costs;
- If you let the property during the times that you’re not using it, you’ll get a share of that income, as well as a share of the increased value of the property over time. You might not have been able to achieve that on your own.
However, Rademeyer says, buying any property with a friend should not be done on impulse – and should always be set up as a “strictly business” arrangement.
“For example, you need to consider that when you get a home loan with another person, you are relying on their ability and willingness to pay their share of the monthly installment. What if they were to lose their job, go through a divorce, get sick or just decide that they didn’t want to do that anymore?”
“You need to have a proper legal agreement prepared by an attorney that stipulates what would happen in such a case. Would the property have to be sold immediately, for example, or would you be able to take over your friend’s share? How would the value of that shareholding be calculated?”
In addition, he suggests, your agreement should stipulate:
- How much time each of you gets to use the property per year – assuming that you may not always want to go there together;
- How you will split the proceeds / profits if and when the property is sold;
- What will happen if one of you wants to sell and the other does not;
- How exactly the costs of upkeep and maintenance will be divided;
- Who will be responsible for managing the property if you intend letting it out to other people.
Above all, Rademeyer says, you should not rush into such a purchase, but spend time honestly discussing every aspect you can think of with your friend, so that you can gauge whether you really are on the same page, or whether this is just a pleasant notion that you should put away with your happy holiday photos.