Summary: Co-ownership is buying a property with one or more people. It has advantages and risks. But with buying with the right people and having the right contracts in place — especially a co-ownership agreement, it can be a great way to get on the property ladder.
Co-ownership doesn’t need to be a lonely process. Work with people like Slice, solicitors and mortgage brokers. This will ensure that you don’t get burnt through the process.

House prices have put even apartments and units out of reach for many. But co-ownership offers a way for people to get into their first home, or buy an investment property. And while many advisors shy away from giving you guidance, this article will walk you through everything that you need to know about co-ownership and getting on the property ladder.

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What is co-buying and co-ownership?

Co-buying and co-ownership essentially mean the same thing. It is buying a house with someone that is not your husband or wife. Co-ownership exists if you buy a property with your parents, friends, siblings or extended family. Co-ownership can exist with lots of people — not just one other. There are even co-ownership models with companies such as Kianga Ora and YouOwn.

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💡 Case study: Anna, Becky, Corey and Dyren are friends that live in Auckland and currently flat together. They are all considering buying a house on their own but are struggling to see how they can afford a deposit let alone the mortgage repayments. They decide to buy a house together. They have taken their first step on home ownership — together.

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Advantages of co-ownership in New Zealand

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Easier to put together a 20% deposit

With rising interest rates and a dramatic rise in the cost of living, buying a property may feel out of reach. But this is only true if you are trying to buy a house on your own. Co-ownership means that you can buy a house with other people (co-owners) and put together your deposit. Individually it may not be a lot, but together it could be enough to buy space for everyone.

💡Case study:On their own, Anna, Becky, Corey and Dyren could not afford their own space with a one bedroom apartment costing around $850,000. But together they can look at a five bedroom house which costs $1.4 million. Anna and Becky work from home whereas the rest go to work. They all agree that the fifth bedroom will be turned into an office.

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More affordable repayments

With co-ownership, everyone contributes — and not necessarily just to the deposit. If everyone is pitching in for the mortgage repayments, this take a lot of the burden off one person paying a lot of their salary just for a first home — or an investment property.

💡 Case study:Nina and Ashish both own homes and are thinking of buying an investment property. They can’t afford one on their own but decide to go into buying an investment property together. If they were to buy an investment property on their own, it would cost $300 in mortgage repayments each week. But by deciding to go in 50/50, both Nina and Ashish pay $150 a week.

It is a great step to take on the property ladder

Home loans are expensive, especially with the climbing interest rate. And property in New Zealand represents a good store of wealth — even with inflation. You don’t need to own 100% of a property to see those returns.

This can be done with friends and family. And just like with stocks where you own parts of company, you can do the same with property.

Co-ownership is a tool for you to build wealth without having to need all that money up front to do so.

💡 Case study:Anna never imagined that they could ever own a home. But with co-ownership with their flat-mates, she is on the property ladder and can see a positive return when they all eventually decide on selling the property — and even buy her own home.

It’s not that different to a couple buying a home really

No one can predict the future. And so while buying a house with your partner is considered less risky, things can go sour — and so too with your friends and family.

The benefit of buying with friends and family is that everything should be discussed up front and typically is put onto paper. It is also easier to put an agreement with friends and family on paper than it is with those in a relationship with a number of laws also coming into play.

💡 Case study:Gemma and Hemisha are friends and co-own a house in Wellington. In their co-ownership agreement, they agreed to sell the property in five years. Gemma has fallen in love with the property and Hemisha wants to sell. In the contract, they agreed that if one person wanted to own the property completely, they would get it appraised by an independent to value the property and the other person would need to buy them out.

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Risks of co-ownership

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It’s a terrible idea without a co-ownership agreement

A lot of people have got burnt when they bought a house with another person because they did not have a co-ownership agreement. A co-ownership agreement sets in place a whole host of ‘what-if’ moments. Without this — we wouldn’t recommend co-ownership altogether!

Here at Slice, we make co-ownership easy by supporting you with templates, solicitors who know what they are doing, talking to lenders during the pre-approval and home loan stages, and education on the management of a co-owned property. At Slice, our co-ownership template agreement is also free.

Some advisors and lenders aren’t set up for co-ownership

While co-ownership is a growing model for buying property, it is still in its early stages in the market. Some advisors and lenders are not too sure how it works and can provide the wrong advice.

That is why we have collated a list of solicitors that can help you on your journey of putting together your co-ownership agreement, pre-approval and home loan agreement.

The tax can be complicated

Suppose you co-own a house in which you live in for a while but then decide to do an O.E and put the property on rent. You continue to pay the mortgage repayments while the other co-owners continue to live in the property. You return three years later and all the co-owners agree to sell. It can get tricky with the bright-line test and whether the sale of the property incurs tax for each person.

A post by Deloitte shows that its not so easy. At Slice, we highly recommend you work closely with an accountant before you decide to sell a co-owned home. This will help you gain clarity on any tax obligations you might have — especially at an individual level.

How to get started with co-buying a property

Ask yourself if you are ready to be a first home buyer

Being a homeowner is a big commitment. Below are some questions you should ask yourself to find out if you are ready:

• Can I save a regular amount of money each month and not touch it for months or even years at a time?
• Can I stick to a plan?
• Do I want to do any bouts of long travel?

If you have any high interest-bearing debt, want to travel without working for more than three months or are thinking of radically changing careers — think hard about your financial commitments.

If you have high interest-bearing debt, pay this off as fast as you possibly can. The interest repayments will cripple your ability to save up for a home.

If you struggle sticking to a plan and find it hard to save, we recommend putting your plan on paper and working with a financial advisor. They can help you set up your accounts so its harder to touch your savings and help you to save up for a deposit.

The other things that you can consider before deciding to co-own a property:

• How much you have saved up in your KiwiSaver.
• The valuations of the types of properties that you are looking at.
• What the property market is doing.

If you have quite a lot saved up in your KiwiSaver, the types of properties you are looking at are units, duplexes or apartments, and the property prices are coming down, you are in a stronger position than you think. Working out how much cash you have and your budget for a purchase price would be a great idea.

💡 Case study:Mariah wants to buy an apartment. She has $20,000 in savings and $40,000 in her KiwiSaver. She also saves $1500 a month regularly. The property market is slowing down and she saw an apartment that she really likes that is priced at $700,000. While she doesn’t mean the 20% deposit and feels she will struggle with the repayments on her own, she thinks co-owning a property with her two siblings would be a great idea.

Find the right people to go into buying a house with

Before you even start putting together a co-ownership agreement, you need to find the right people to buy a house from. Questions you need an honest answer to:

• Does the other person (or people) want to co-own a property with you?
• Are they in the right financial space and mindset to be buying a property?
• Can you trust this person with money?
• How do they deal with conflict?

Just like banks do pre-approvals, so should you — especially if you are buying with friends and extended family. You want to make sure that they are financially able to buy a house and participate in the co-ownership meaningfully. And while co-ownership agreements can be flexible, you also want to make sure you get what you pay for.

If the other person has high interest bearing debt, doesn’t have any savings and is ‘flakey’, then it might be worth reconsidering who you buy with.

Agree on property co-ownership as the model to buy property

Even if another person passes your ‘pre-approval’ they might not be interested in buying a house with you. They may have their own financial goals and see the property market differently you to you and want to go about things their own way. And that is totally fine.

There are also other ways of buying a property with someone else as well — like your parents being a guarantor (supposing they have equity in property already) or gifting you a deposit. In these circumstances, also consider the risks and tax obligations.

💡 Case study:Amy wants to buy a house but she hasn’t saved up enough of a deposit. Her parents give her $50,000. Amy buys a house. Amy doesn’t need to pay back her parents since it was classified as a gift. Her parents feel disappointed that Amy has decided not to pay them back.

These ways can also create a burden of risk and one party feeling like they are missing out on an upside. Co-ownership means that you can get rewarded for the percentage of property that you paid for without the awkwardness — especially with a strong co-ownership agreement.

💡 Case study:Betty wants to buy a house but she hasn’t saved up enough of a deposit. Her parents decide to act as guarantors. Betty buys a house. A couple years later, Betty becomes spendy and decides not to pay her mortgage repayments. Betty’s parents are left to pay the bill.

Finding the right people to buy a property with is one of the most important steps in co-ownership — so don’t rush this part. It is better to spend 3 - 6 months on finding the right person than to co-own with someone that you don’t see eye-to-eye with.

Get on the same page in terms of property, purpose, price and position.

The 4Ps of co-ownership is a Slice special. You want to ensure that you are aligned about the following things before moving onto a co-ownership agreement:

• The type of property that you want to own. This could be a unit, apartment, free-standing, duplex or townhouse. You also need to agree on where the property should broadly be located. Does it need to be a new home or is an existing home ok?
• Who is going to live in the house? Is it going to be a rental or is it going to be a property where one person, two people or everyone that co-owns it will live in? If one person is not living in it, how much should they pay compared to everyone else? Is it fair for just divide the deposit and mortgage repayments by four if one or more people are not living in it?
• What price range are the properties going to be in?
• What is each person’s financial position? How much does each person have saved up? How much of their savings are they willing to contribute to the deposit? What happens to those who have saved up less? How are the repayments going to be split? What happens if someone’s financial position changes? If or when will the property be sold?

There is a lot to talk about. And before you commit anything into a formal document, it is best to talk about all the what-if scenarios that could possibly happen.

Talk to a solicitor to draft up a co-ownership agreement

Once you have an understanding of the 4Ps with your co-owners, it is time to draft up and sign a co-ownership agreement.

It is important to work with a solicitor for your specific circumstance and ensure that what you have agreed on is reflected on paper.

At Slice, we have a number of solicitors that we recommend! They have a lot of experience in putting together co-ownership agreements and coaching you through the legal process.

Again, it is really important to get a co-ownership agreement to reflect what you have discussed. It is also this document that lenders want to see as you get a home loan.

Work with a mortgage broker to get you the best home loan deal

A mortgage broker is someone that works on your behalf to get you the best home loan deal. And showing them your co-ownership agreement will be crucial.

It’s important to check your mortgage broker works with a wide range of lenders. You want to get the best deal and this means the lowest interest rate and any cashback offers that may be available. Even a saving of 0.30% over two years can mean a saving of thousands.

The saving in the example above is a whopping $16,864.

After some negotiation, you should have a pre-approval offer from a lender.  It will contain how much money the lender is willing to loan you. This ultimately is your budget when looking at properties.

Look for properties

Now for the fun part! Start by looking at websites such as homes.co.nz, TradeMe, Real Estate and OneRoof. Use the filters to find exactly what you agreed on as part of your 4Ps to co-ownership.

It typically takes seeing around 50 properties to get a feel for the market. Talk to real estate agents and see if you can get any inside word. It can help you to paint a picture of what properties are selling for might be under negotiation, and if they see the market slowing down or picking up.

Get your documents in order

Once you do find a property that you like, you want to get a building report and LIM report done. This will ensure that the house that you are buying doesn’t have any problems with it.

If you do find some problems, but you feel that you can manage the renovation, you can take this information into the bargaining process.

Put in an offer

Once you have done your due diligence on the property and got all your documents in order, you are ready to put in an offer! This is where you communicate to the real estate agent that you are wanting to buy the property. This will then trigger negotiations. The current homeowner may want to negotiate on price and move-out date.

There are a couple of levers you can pull depending on what the homeowner wants. For example, if a homeowner wants to move out in a couple of months, you can negotiate them down on price.

Settle on property with the sale and purchase agreement

At the end of the negotiation, the real estate agent will hand you a sale and purchase agreement. This is the formal contract that will determine ownership of the property from the current owner to the co-ownership.

Decide on how you will manage the co-owned property

As part of your co-ownership agreement, you should also consider how you will manage the property when you own it. This can include things like:

• Renovations
• Updates to interest rates or bank terms
• Changing bank loan providers
• How to manage someone wanting to cash out

The more professionally you treat these types exercises (formal meetings with Minutes), the easier managing your co-ownership will be. The meetings don’t need to be long or weekly. Even every two months and for one hour can be enough.

Selling a co-owned property? Here’s what to do

Suppose your co-ownership wants to sell the property. The process is relatively simple.

1. If you have a financial advisor or mortgage broker, let them know that you are thinking of selling your property. If you are living in the house, you might need to be looking for a property at the same time.
2. Find a real estate agent that you want to work with. Metrics you should consider include: close rate, time on market, average sale price and an understanding of fees.
3. Inform your bank that you are looking to put the property on the market. If you are in a fixed term loan, you might need to continue to pay in accordance with the schedule — or pay break fees to pay off the loan immediately.

If you need any guidance on this, feel free to reach out to solicitors.

What next?

If you are looking to start your journey on co-ownership, feel free to reach out to us here at Slice! We exist to make buying your first home easier. We can tell you where to go and how to go about it.

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