Buying Property with Friends or Family - Smart or Risky?

Why Is Co-Ownership So Popular?

Alana notes that pooling resources allows buyers to enter the market sooner and often afford a better asset than they could alone. Damien agrees that deposit size is usually the biggest constraint driving people toward this option, but flags that a lack of clear exit planning is his biggest concern whenever a client raises the idea of buying with a sibling, friend, or family member.

Tenants in Common vs. Joint Tenants

Alana explains the two main ownership structures: joint tenants (where, if one owner dies, ownership automatically passes to the surviving owner) versus tenants in common (where each party holds a defined, and not necessarily equal, percentage of the property). For non-spousal co-ownership, Alana recommends tenants in common, since it allows an uneven split (for example, 60/40) matched to how much each party is actually contributing, and can allow the loan itself to be isolated between parties depending on the lender.

Using a $600,000 purchase as an example, a 60% owner would be purchasing $480,000 worth of the property, borrowing around $380,000 at an 80% LVR on their share specifically, separate from the other owner's share and loan.

Property Share Lending Arrangements

Alana explains that with the right lender, a "property share" style loan keeps each owner's portion of the loan completely separate, visible only in that person's own online banking, with their own offset account against their own share. If a co-owner defaults, the other party is still liable as guarantor for the shared loan overall, but day-to-day, each owner only needs to service their own share and isn't automatically exposed to the other's broader financial position.

The Hidden Cost: Reduced Borrowing Capacity Later

Both Alana and Damien flag a key drawback: without a proper property share arrangement, some lenders will count the full shared debt against each owner's borrowing capacity while only crediting a partial share of the rental income (for example, 50%), significantly limiting an investor's ability to borrow for a subsequent property. Damien notes this is where he's most commonly seen clients get stuck, wanting to keep building a portfolio, but finding their accumulated joint debt holds back further lending. Alana adds that when a co-owner later wants to combine finances with a new partner (for a joint home purchase, for example), only a small number of lenders offer a "non-spousal common debt reducer" policy, which allows that person's share of a prior joint debt to be assessed independently, minimising the impact of the earlier arrangement on new borrowing.

Given these constraints, Jeremy and Damien's general view is that if an investor can realistically manage a purchase independently, doing so avoids many of the accumulation-phase complications that co-ownership introduces.

Alana's Practical Advice

Alana stresses that co-owners should treat the arrangement much like a marriage, requiring full agreement on decisions from tenant selection to maintenance and unexpected costs, and cautions that mismatched money management between co-owners (one person handling their finances well, the other less so) can create real strain, since unexpected costs or missed contributions ultimately fall back on the more financially responsible party. She also notes some lenders require independent legal advice for each party at the loan document stage specifically because of how significant these arrangements can become.

The Importance of a Clear, Short-Term Exit Plan

Jeremy shares that in his experience with joint ventures, the safest approach is to deliberately set a short exit timeframe from the outset (for example, two to four years), with continuation beyond that requiring explicit agreement from all parties, rather than leaving the arrangement open-ended. His reasoning: circumstances inevitably change (marriage, illness, career shifts, death), and negotiating an exit only becomes genuinely difficult once those changes have already occurred and expectations between parties have diverged. Damien reinforces the importance of putting this agreement in writing rather than relying on a verbal understanding, noting that in his experience helping clients plan finances, almost none of the family or friend co-ownership arrangements he encountered had anything formally documented.

Jeremy shares a personal example of a joint venture with a friend that he needed to exit within six months of starting, due to a change in his own circumstances, noting the friendship itself remained intact despite the early exit, in contrast to a separate joint venture (involving shared renovation work) that played out successfully over its full course. His overall view: shorter, clearly bounded arrangements carry meaningfully less risk than open-ended ones.

Real Client Examples

Damien shares several illustrative examples from his own experience: a brother and sister who initially planned to buy together but were ultimately advised to purchase separately once it became clear their life circumstances (one planning to move overseas, differing relationship situations) were diverging; a client who had co-purchased multiple properties with her brother and later needed to restructure ownership entirely once that arrangement began limiting her ability to keep growing her own portfolio; and a case involving a land purchase with a sibling during a period of low interest rates, where a lengthy land registration delay (common with house-and-land packages) meant that by the time the block was ready to build on, interest rates had risen substantially (from around 3% to 6.6%), the land's value had fallen by roughly $200,000, and the co-owner's brother ultimately had to step in with additional funds to help resolve the situation.

Inherited Property Between Family Members

Jeremy and Damien briefly discuss a further common scenario: siblings jointly inheriting a property. Both note that while it's possible to simply hold the property together and share rental income, capital gains tax considerations (including a temporary CGT exemption window in some cases) need to be weighed carefully, and that since co-owners will inevitably diverge onto different financial paths over time, having an open, documented conversation early about the property's future is worthwhile regardless of how the ownership arrangement began.

Closing Thoughts

Jeremy and Damien's overall advice: if an investor can reasonably achieve their goals independently, doing so avoids much of the complexity co-ownership introduces; but where pooling resources is genuinely necessary, using the right ownership structure (tenants in common, ideally with a property share lending arrangement), documenting expectations in writing, and committing to a clearly bounded, short-term exit plan from the outset are the key protections against things going wrong. They thank Alana for joining again and close by encouraging listeners to like, comment, subscribe, and share the episode with anyone considering buying property with a friend or family member.