Friendship is the new frontier for Australians trying to buy a home, and not just with first home buyers. Across all age demographics, First National Real Estate agents are working with more and more people who are teaming up with friends to buy their first home, a home to live in with a friend after separating, or a younger person who might share some of the load when it comes to chores that older Australians find more challenging.

‘Rentvesting’ is another a relatively new solution to Australia’s housing affordability woes, and it’s a great strategy to break out of a ‘rent money is dead money’ scenario. It’s a step-by-step process whereby people generate a positive monthly cashflow from their rental portfolio, while they’re renting a property themselves. More about that later.

With our youngest buyers, we’re finding nearly 40% are happy to consider buying with a friend instead of somebody they’re in a relationship with, while others more broadly are considering buying with a group of friends. It’s a creative solution to the expensive and sometimes overwhelming challenges of saving up a deposit and then finding a home that suits everybody’s needs. Plus, for first home buyers who will be living in their property, there’s a raft of government grants, stamp duty waivers and deposit schemes to explore – check out our First Home Buyer Financial Assistance guide.

Given the divorce rates, buying a property with a good friend may be the best option for many of us to break into or return to the property market after going through a separation or the loss of a partner.

There are however some things to consider before you take the leap, to protect you all and to make sure that whatever happens, the property does not get in the way of your friendship, or your individual futures.

 

Take a test run

 

If you both plan to live in the home you buy together, then you should at least try to live together for a while first. Even the closest of friendships have been torn apart over unwashed dishes and unmatched expectations. Why not move into a furnished apartment on a 6-month lease as a test run?

Travel is another great way to discover a new level of friendship, as both of you are put into various pressure situations. A week in a foreign environment, sharing a room and having to budget spending, and plan activities together, tests all the essential components of a friendship – patience, selflessness and, most of all, expectations.

 

Assess Your Friend’s Financial Situation

 

Buying a property with a friend is a serious financial commitment, not only because of the potential for decades of monthly repayments, but also the responsibility for the ongoing expenses involved in running and maintaining the property. You and your friend/s should spend some time going over your finances, being as honest and open as possible about your own expenses, spending, savings and debts. This will give a true picture of each of your financial strengths and weaknesses. Thought also needs to be given to how such an arrangement will be brought to an end amicably, should anybody’s needs change.

Drawing up individual budgets is a good exercise to learn exactly where your money goes. Knowing each other for what seems like forever, does not mean you have any idea about what each of you does with your money. Discuss what your current budgets are and how they will have to change to manage the new expenses. It’s important you both understand the commitments of buying a house with a friend.

 

Decide on Responsibilities with your Friend

 

Once you’ve decided that you can buy a house together, it’s important to plan ahead and have a clear understanding of what you both want and what your individual responsibilities may be. If one of your longer-term goals is to be in a relationship and start a family, then it’s safe to assume that will happen during the course of your mortgage/s.

You’ll also need to consider who is responsible for what a property needs to be regularly maintained. Decide prior to buying who will be in charge of managing tradespeople, or even the myriad of odd jobs around the house. Sit down and discuss who will take care of the garden and who will go to the body corporate meetings, for example. All of these ‘responsibilities’ need to be considered and allocated in advance to avoid confusion and resentment in the future.

 

Property Co-Ownership Legal Considerations

 

It is vitally important that both or all of you meet with a solicitor to help draft up a co-ownership agreement. This should clearly detail what happens if your friend/s can’t pay the mortgage, want to sell their share in the property, if the relationship deteriorates, or there is a death. Another consideration when buying a house with a friend/s also includes updating your wills to accurately reflect your circumstances and wishes.

You may need to set up a joint bank account for expenses, outsourcing maintenance and putting direct debits in place for mortgage and bill payments.

Buying a property with your best friend can be a fantastic experience - if managed well. It’s important to protect both of your personal and financial futures, however, and know also that the future is largely unpredictable. With precautions in place that anticipate most scenarios, you will both be able to reap the benefits of your shared property investment, and experience a deeper level of friendship as you enter into a new kind of partnership together.

 

‘Rentvesting’ as a pathway to property ownership

 

Rentvesting is a modern investment philosophy that allows you to live where you want while still being able to afford to buy property. Unlike traditional property ownership that often requires significant financial sacrifice and limits your lifestyle choices, rentvesting helps you minimise rental expenses and invest your surplus money to build wealth.

This approach can help you avoid chipping away at a mortgage for 30 years and accelerate your property ownership goals. In fact, a rentvesting strategy can help you own three investment properties in just three years, if you plan carefully. It’s a strategy that requires discipline and careful budgeting to make your savings work for you. However, it’s critical you remove emotions and the risk of spontaneous purchases that may not align with your budget.

Rentvesting leverages both time and money to maximise your ability to accumulate wealth. We recommend getting professionals to do the legwork for you to reduce stress and save time, while also leveraging your money to maximise returns and deductions.

One of the main advantages of rentvesting is the attractive tax benefits. Having an investment property makes you eligible for several tax deductions - but don’t forget, if you make your investment property your home then you won’t be entitled to claim any of them. The sorts of things you can claim are:

• Interest on mortgage repayments
• Advertising for tenants
• Agent fees and commission
• Repairs and maintenance
• Depreciation deductions for general wear and tear from natural causes
• Land taxes
• Home insurance
• Water and council rates

 

What in-principle steps are involved in Rentvesting?

 

1. Save your deposit
   1. Aim for a property that is undervalued, in an undervalued area
   2. Save your deposit using the 50/25/25 Budget Rule – 50% of income goes to living expenses, 25% to lifestyle and the remaining 25% on savings
   3. Set your property purchase budget goal i.e., $200K, $300K or $400K and aim to save a 20% deposit i.e., $40K, $60K or $80K which equates to savings of $3,303, $4,955 or $$6,607 monthly
2. Find your first property
   1. Speak to 3 mortgage brokers and research interest only loans, mention you plan to generate positive cashflow, and work towards pre-approval for your loan
   2. Attend as many open homes as possible in the undervalued area of your choice
   3. Build relationships with real estate agents or a buyer’s agent and ask to be told first about upcoming properties
   4. Keep your emotions out of the purchase by staying focused on the best area for capital growth, low vacancy rates, good infrastructure and transport links
   5. Shortlist the properties that most closely meet your goals and get accurate appraisals of their likely rental returns
   6. Negotiate and secure the property – Be ready to make a realistic offer, sign a contract and pay your deposit quickly
   7. Hire a property manager to find your first tenant and secure a lease
3. Work towards the next property purchase
   1. Once you are generating a positive cashflow it’s time to save your next 20% deposit amd start looking for the next investment property
   2. You will now be able to save your next deposit faster than your first and your tax deductions (which have been maximised because you are paying interest only) have been optimised
   3. Diversify your portfolio by not buying in the same area - if your first purchase was a unit, try now to buy a house
   4. Secure your next purchase and repeat

 

Initially, the concept of rentvesting may appear unconventional – why pay for rent and a mortgage simultaneously? However, if you have a suitable budget, conduct thorough research, consider your investment strategies, and possess specific lifestyle needs, then rentvesting could be a wise decision for you.

For instance, you may be an individual seeking to enter the property market but unable to afford your desired home. Alternatively, you may already be renting and content with your current living situation, but the timing is unsuitable for relocating. Or, perhaps you have a job and life in the city where you are presently renting or planning to rent and anticipate moving to a more spacious area in the future.

With rentvesting, you can enjoy the best of both worlds. Moreover, by obtaining expert advice from a rental property manager, you can savour the lifestyle you desire while simultaneously securing a financially stable future.

 

Financial disclaimer:

 

Any advice and information in this eBook is general only, and has been prepared without taking into account your particular circumstances and needs. Before acting on any advice in this document, you should assess or seek advice on whether it is appropriate for your needs, financial situation and investment objectives.