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Going quarters in a home loan

Discussion in 'Real Estate' started by rafael84, 19th Nov, 2009.

  1. rafael84

    rafael84 Member

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    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
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    One thing to be careful of is that the bank will hold each of you jointly and severally liable for the loan.

    That means that the bank can choose to go after any one of your if the loan repayments are not met - so if your Aunty and Uncle skip the country, you'll be left holding the loan and the bank will come after you.

    The big question you need to ask yourselves is - what is your exit strategy? What do you do when someone wants to sell? What do you do if someone can't afford the repayments anymore? What do you do if there is a falling out between you and your aunt & uncle?

    These aren't just trivial questions designed to scare you off - they are very serious questions which are typically ignored in the thrill of the moment when you have your heart set on a particular idea ... but can tear a family apart if you don't have a plan for dealing with these eventualities.

    Some people are able to make these arrangements work. Many aren't. Proceed with caution!
     
  3. rafael84

    rafael84 Member

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    Thanks Sim, these are all things we would consider before entering the arrangement. So in summary, what you're saying is that this can be done?

    Our repayments would work out to be about $300 per week per couple, so I don't think the repayments would be a problem...

    My other question is...if we borrow say $600,000 between us, will the bank work out repayments on a $600,000 loan and then we just halve the repayments? or does each couple need to take out a $300,000 loan and make repayments on that figure?
     
  4. Billv

    Billv Getting there

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    I think it would depend on the product/lender.
    ask to have them separate and see what your lender says
     
  5. Billv

    Billv Getting there

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    I see many problems but more so because you'll be living in the same house.
    People want their own space.
    You could be arguing about the use of the common areas, about how much noise you make, about how much electricity and water you use, about leaving mess or not doing your bit on the chores etc. It can get ugly and harm your relationship.

    In a house where the relationship is parents and kids even if you argue you are very close and will not take offence of verbal arguments but with more distant relatives it won't be pretty.
    IMO it would have been safer if you bought a place which can be split in 2 totally separate areas or a property having 2 duplexes or you could simply buy the property as an investment.

    But even if you did buy the place as an investment, it could be that the horse has bolted now and property prices won't go up as much as you'd like them to, so at some stage either party will want out.
    When this happens you'll be forced to borrow the additional $300K and go solo but doing so would depend on your ability to take on such a big loan. So I think it would be better to go alone now when interest rates are still low and if you want all of you to stay in the house one couple could pay board.
    If the other couple wants to own something they can buy an investment property.
    How old are you and how old is your uncle/auntie?
    Your individual circumstances (kids/no kids, other investments, amount of super, age to retirement etc) should be looked at before you commit to something like this.
     
  6. Billv

    Billv Getting there

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    I should point out that I'd rather buy an investment which has better yields and rent a property close to the city where it's cheaper to rent than to own.
    Remember that interest rates are the lowest they've been for many decades so there is only 1 direction to go and that's up.

    So if renting makes sense now, it will be a better options as interest rates go up. Also, rents have already had their appreciation so we can assume that they won't be going up anytime soon and especially in the area where you want to live because they would already be high.
     
  7. rafael84

    rafael84 Member

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    Hi Bill

    We are looking at a large 4-5 bedroom + 1-2 study house which is multi level with 2 completely seperate living areas (2 kitchens, 2 bathrooms etc.) So essentially nothing would be shared, it would be like living in a unit. We're a young married couple with a baby on the way, my uncle and aunty are both relatively young (around 40), and I actually work full-time with my uncle in a small company of 8 employees.

    Are you saying that the money (let's say $300,000) would be better spent on an IP whilst we rent a place close to the city? Our ideas were that we buy a large house in the city's edge in a blue chip suburb for just under a $1M, share the repayments (cheaper for them, and cheaper for us compared to our current arrangements (they will be putting down a $250,000 deposit)) We live in it for a couple of years, and go from there. We will draw up an agreement with exit strategies.
     
  8. Billv

    Billv Getting there

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    I don't know if this is a better strategy, you need to do the numbers and to also look at your situation closely thinking that your family will grow, your auntie.uncle could be looking to retire, could have health issues etc.

    There is merrit in having an investment property because expenses are tax deductible and if for example interest raes go to 10% you will be sharing your pain with the ATO but on the negative side you'll pay capital gains tax on any profits.

    I can't comment on Bisbane's blue chip suburbs, it's not a market I'm familiar with. However, It wasn't long ago when many highly desirable luxury homes at the gold coast were selling at a significant discount.
    I don't know if this had any impact on the Brisbane market