Disclaimer:
This article provides general information only and does not constitute financial, legal, tax, or investment advice. Property investment involves risk. Always do your own research and seek personalised advice from qualified professionals before making investment decisions.
Key Takeaways
- Co-investing can help you enter the market sooner with combined resources.
- Choose between joint tenants or tenants in common ownership structures.
- A comprehensive co-ownership agreement is essential.
- Understand joint and several liability on mortgages.
- Plan for disagreements and exit scenarios before they happen.
Pooling resources with a partner, family member, or friend can be a smart way to get into property investment sooner. Two incomes and two deposits can open doors that might be closed to you alone. However, buying property with someone else adds complexity that needs careful management.
Benefits of Co-Investing
There are genuine advantages to buying property with someone else:
- Combined deposit: Two people can often meet deposit requirements that one could not.
- Increased borrowing capacity: Two incomes mean you can borrow more.
- Shared costs: Purchase expenses, maintenance, and unexpected costs are split.
- Shared workload: Property management tasks can be divided.
- Faster market entry: You can buy sooner than waiting to save alone.
- Reduced risk: Financial burden is shared if things go wrong.
Understanding Ownership Structures
In New Zealand, there are two main ways to hold property with someone else:
Joint Tenants
With joint tenancy, all owners hold the property equally and have a right of survivorship. This means:
- If one owner dies, their share automatically passes to the surviving owner(s)
- Ownership shares are always equal (50/50 for two people)
- All owners must agree to sell or mortgage the property
- Common between married couples or de facto partners
Tenants in Common
With tenancy in common, each owner has a distinct share that can be different sizes:
- Shares can be unequal (e.g., 60/40 or 70/30)
- Each owner can leave their share to whoever they choose in their will
- Shares can be sold independently (though other owners may have first right of refusal)
- More flexible for investment partnerships where contributions differ
Which Structure to Choose?
For investment partnerships with friends or family (not romantic partners), tenants in common is usually more appropriate. It allows flexible ownership shares based on contributions and gives each party control over what happens to their share.
The Co-Ownership Agreement
A co-ownership agreement (also called a property sharing agreement) is essential when buying with someone else. This legal document should cover:
Ownership and Contributions
- Ownership percentages and how they were determined
- Initial deposit contributions from each party
- How ongoing mortgage payments are split
- Responsibility for rates, insurance, and maintenance costs
Decision Making
- How decisions about the property will be made
- What happens if owners disagree
- Authority to make emergency repairs
- Process for approving tenants or property managers
Exit Scenarios
- What happens if one party wants to sell
- Right of first refusal for remaining owners
- How the property will be valued for buyouts
- Minimum holding period before sale can be forced
- Process if one party defaults on their share of payments
Life Events
- What happens if an owner dies
- What happens if an owner gets divorced or separates
- What happens if an owner goes bankrupt
- What happens if an owner wants to bring in a new partner
Understanding Joint and Several Liability
When you take out a mortgage with someone else, you are usually jointly and severally liable. This is critically important to understand:
What Joint and Several Means:
If your co-borrower stops paying their share, the bank can pursue you for the entire debt, not just your half. You could end up paying 100% of a mortgage on a property you only own 50% of. This is true even if you have a private agreement about splitting payments.
This is why trust and careful partner selection are so important. You need to be confident your co-investor will meet their obligations.
Choosing the Right Co-Investor
Not everyone makes a good property partner. Consider these factors:
- Financial stability: Do they have stable income and good money habits?
- Aligned goals: Do you agree on holding period, exit strategy, and risk tolerance?
- Communication style: Can you discuss money and problems openly?
- Track record: Have they honoured financial commitments in the past?
- Relationship strength: Is your relationship strong enough to survive disagreements?
Common Problems and How to Avoid Them
Problem: Different Investment Timeframes
Solution: Agree on a minimum holding period and review dates in your co-ownership agreement.
Problem: One Party Wants to Sell, the Other Does Not
Solution: Include clear exit provisions, buyout procedures, and valuation methods in your agreement.
Problem: Disagreement Over Property Decisions
Solution: Define decision-making authority upfront. Consider appointing one person as the primary decision-maker for day-to-day matters.
Problem: Unequal Contributions Over Time
Solution: Track all contributions and agree on how additional investments affect ownership shares.
Getting Professional Help
Before buying property with someone else, invest in professional advice:
- Lawyer: To draft your co-ownership agreement and explain the legal implications
- Accountant: To advise on ownership structure and tax implications
- Mortgage broker: To explain how joint borrowing affects each party's borrowing capacity
The cost of good advice upfront is nothing compared to the cost of disputes later.
Making It Work
Successful property partnerships are built on:
- Clear written agreements covering all scenarios
- Open and honest communication about money
- Regular check-ins to discuss the investment
- Separate personal finances from the investment
- Treating it as a business arrangement, even with friends or family
With the right preparation, co-investing can be a powerful way to build property wealth together.