Do's and Don'ts When Buying Property With Family

Buying a shared property with family members can be a solution to several problems. It can lessen the financial burden of buying the house, it allows for sharing monthly expenses, and it creates a sense of security... right?

Unfortunately, things can go wrong and when they do go wrong, it can ruin precious relationships between family members. Many bonds have been broken over money and other financial issues.

So how exactly do you prevent this from happening? What do you do and what do you avoid?

If you are considering buying a property with family, the best advice is: forewarned is forearmed. There are several legalities that you need to consider before taking this step.

The major risk is drawing up a co-ownership agreement where such an agreement was non-existent. If such an agreement is drawn up without stipulating exactly who owns what shares, then it is assumed that everyone owns equal shares of the property. Joint owners who do not state this in clear terms, often end up in nasty legal battles when the relationships become strained or broken. This is also the case when one family member passes away and it is not clear as to what should happen to the house. 

Here are a four do's and don'ts when buying a property with family:

#1 - What to include in the co-ownership agreement

The most important thing that you should do is specify the percentage of the property that each person owns. This should also be recorded in the new Deed of Transfer of the property. The Deeds Office will then register the property accordingly.

In the event of movable property, like furniture, it should be stated to whom those contributions belong. You must discuss what will happen in the event of death or the breakdown of a relationship. Include these decisions in the agreement. You should also stipulate how the property will be used and who is responsible for maintenance, who can occupy the property, etc. 

 #2 - Acknowledgement of debt

Along with the co-ownership agreement, both parties must also sign an acknowledgement of debt document for their share of the mortgage bond in favour of the other owner.

Co-owners are equally responsible for repaying the mortgage which means that the bank can recover the payment from either one of the co-owners, regardless of the split in ownership.

In the case of tenants, each tenant is 100% responsible for the full rental amount, not just their share. 

#3 - Insurance considerations

Co-owners are advised to take out life insurance that would protect the other party in the event of death. This will allow the other party to pay off any extra debt on the mortgage.

It is also advisable for both parties to take out an income protection policy. This policy pays out in the event of a disability and also assists in the repayment of the mortgage if one of the owners is unable to go to work. 

#4 - Co-ownership with elderly parents

It often happens that children buy a home with their parents to lessen the financial burden in the case of retirement. In this situation, family arrangements can become very complex and it differs from case to case.

What is important here is that you and your parents sign the abovementioned documentation stipulating exactly what is expected from both parties. 

It is highly recommended that you seek the advice of an experienced attorney specialising in real estate law. This will ensure that the proper documentation is drawn up and that all parties are satisfied with the purchase of the property.