08 Apr Why not to buy property with friends and relations – Peter Maloney
Entering the property market with a close friend or family member is a dangerous idea, according to a report by legal technology experts GlobalX. It found 45 per cent of lawyers and conveyancers would not recommend purchasing property with family or friends. Peter Maloney tells us why and if you are going to do it, how you should prepare.
Kevin: It always seems like a great idea: if you want to get into the property market, maybe you could do it with a friend, maybe you could do it with family. It sounds like a tremendous idea and we’ve spoken about it in the show in the past, but I want to talk about it again because there’s some very interesting research that’s just been released by Global X, where they found that 45% of lawyers and conveyances would not recommend doing exactly that.
Joining me to talk about the results of that – and maybe some ways you can get around it – Peter Maloney from Global X.
Peter, thanks again for your time.
Peter: Great to be with you again, Kevin. Thank you.
Kevin: I have to say I’m not terribly surprised by this, because so many things could go wrong when you do buy a property or go into business with family and friends, Peter.
Peter: Absolutely. Let’s look at the often-told story: we’ve got two mates having a beer at the pub, each of them has saved $30,000 and want to buy a property, but the deposit they need is $60,000, so they decide to buy it together. At the time they decide to buy it, it’s great, everything is happy and good. But everyone’s life changes.
Three years down the track, one of the mates decides to get married and his new partner says “Well, you need to sell that property because we need to buy one for ourselves.” And this is where it starts to fall apart.
Good intentions on day one are fantastic, but life changes. And lawyers, solicitors all understand that at the time the property transaction has been done, there isn’t an adjacent contract to govern how that relationship would work.
Kevin: We’ll talk about what you should do if you do decide to go down that path in just a moment, but just talk a little bit about why this is happening. Obviously, it’s to do with housing affordability and you painted that wonderful picture of two guys in the pub having a beer. They need to come up with a deposit; maybe the best way to do it is to do it together.
Are we going to see that continue? Do you think this co-buying needs to continue?
Peter: I think so. It’s well and truly entrenched. It’s also not only mates doing it together, but the other large category is parents: parents lending the deposit to the child or parents acting as a guarantor for the loan or for the mortgage instrument. What ends up happening is the parent therefore has the right to have their name on the title. They really own a stake in the property.
But again, life changes. What happens if the parents divorce and that deposit that went into the child’s home now becomes part of the family estate as part of a family law matter?
Kevin: It’s all great until it comes unstuck, isn’t it?
Peter: That’s right.
Kevin: And then the best way to make an enemy is to go into business with a friend or with family.
Peter: Yes. Well, often they work, and sometimes they don’t. Hopefully more often than not, they do work.
Kevin: The difficult conversation is one that I think you should have with a solicitor or a lawyer, and that is you have to work out what the exit strategy is. Before you go into an agreement, “How are we going to pull this thing apart?”
Peter: That’s 100% correct, and that’s the advice from the solicitors as a result of the survey that Global X did most recently, which is they recommend against entering into a property transaction that we’ve just described if you don’t have an adjacent agreement.
What’s going to govern how the two parties will engage, and what governs the termination of the agreement? What if one sells and the other one doesn’t want to sell? Has one got the right to purchase the other one out? And how do you really try to keep it out of the courts when things go wrong?
Kevin: It really is best to go and talk to a solicitor, because they’ve probably seen all of these scenarios unfold over the years and they can bring their experience to the table. If I were to go in with a family member, we’d probably say “Well, look, it’s okay if you decide to sell. At that time, just let me know and we’ll pull all this apart.” It doesn’t quite work that easily.
Peter: No. That’s right, and solicitors are experienced at this. And they see it not just in the context of a single property transaction but they see it in the day-to-day lives of people where they’re creating wills or estates, family law matters, commercial litigation, insolvency or bankruptcy. And property is just one asset, so they are highly experienced about how to create a contract that’s suitable to both parties.
I often make the analogy, Kevin, that it’s a pretty tough and sometimes confronting conversation to sit with a lawyer and talk about the outcome of a will, but this is a bit about what it’s doing on the property side. You have to be prepared to have that conversation today to avoid any problems in the future.
Kevin: The other thing I’d like to mention, Peter, in support of what you’re saying is this is not just a group of solicitors trying to drum up more business, because you’ve received some pretty good support from the Real Estate Institute of Australia. Their president, Malcolm Gunning has in fact come out and said that this is something that any buyer needs to do.
Peter: Absolutely. And this is absolutely not about lining the pockets of solicitors. This is about protecting a consumer before they enter into a contract that they have the right advice as to how to get out of that contract if they need to at some time in the future. Because the reality of life is individual situations and circumstances will change.
We look back at our own lives, and all your listeners can look back at their lives ten years ago and say “Well, my life is not the same.” We don’t know what we don’t know, but lawyers and solicitors are there to help us prevent problems in the future.
Kevin: Peter, just before I let you go, talk about Global X for a moment. Really gathering a lot of pace. Tell me about Global X. What do you do, and why do you think it’s becoming more and more popular?
Peter: Global X is really at the heart of property. Not often does the consumer see our name, but the solicitors and conveyancers see us all day every day. We, in essence, do three things. We are Australia’s largest property settlement service, so we’re the parties who help exchange contracts, exchange funds, and help the consumer move into their house on the settlement day.
We supply regulatory data to lawyers and conveyancers, and we wrap all of that around some workflow software called MetaCenter to help lawyers and property lawyers manage their day-to-day office.
Kevin: Yes, electronic settlements are more and more becoming the norm. I think we’re trusting more the technology we can get online now. It makes things a lot faster. And the point you just made there, too, I think is a good one, is that you can actually track what’s happening and look at it in the global sense.
Peter: Absolutely, without any doubt. And on the point of electronic conveyancing, it’s faster, it’s safer, it’s far more secure. Vendors are getting their payments not by bank check or three-day clearance any more; they get them the moment a settlement has occurred. Purchasers can bump in much quicker to their property than what they could in the paper-based world.
Kevin: Good talking to you. Peter Maloney there from Global X. Thanks for your time, Peter.
Peter: Great. Thanks, Kevin.