Tighter lending criteria following the GFC is resulting in more buyers banding together with friends or family to buy property. These types of buyers still make up a very low proportion of home loans but some lenders say they are seeing more of this.

We’re also seeing more specially formulated home loan products being offered by lenders, enabling co-owners to essentially take out two separate loans so their finances remain separate and they can pay back their share at their own pace (with each liable for the other on defaults). Some lenders are also offering ‘family pledge’ products where a family member agrees to go guarantor. This is a very effective way to get your loan-to-value (LVR) ratio below 80 per cent to avoid mortgage insurance.

Property can be owned solely by you or jointly with another person, or by a company, trust or superannuation fund. Ownership can have far-reaching legal, control and tax implications. Getting it right from the start can save you a lot of hassle in the future.

While sole ownership is always best, there’s nothing wrong with buying with friends or family but you need to be smart about it. Take a business-like approach and get independent legal advice before doing anything. You have to assess every contingency. What if you and your friend or family member have a falling out? What if they die – who inherits their share of the property? What if one of you wants to sell before the other?

In short, get it all in writing. No matter how good your relationship is now, you’d be wise to get your agreement down on paper. Get a formal legally binding co-ownership agreement drawn up, setting out the rights and obligations of each person including what you agree to do if someone wants to sell their share or defaults on their mortgage payments.

There are two ways to own a property jointly with others. You can be joint tenants, which means you own the property in equal shares and if one joint tenant dies, the surviving joint tenant automatically gets their share, irrespective of the terms of any will. Tenants in common can own the property in any proportions they like. If one dies, their share is passed on according to their will. Thus, tenancy in common is well-suited to friends or relatives owning property together, or for parents who want to leave their property to their children.

You also need to consider the tax implications of your ownership agreement. If you’re buying an investment property with your partner, you can maximise the benefits of negative gearing if you put the property in the name of the highest taxpayer. That’s because the ATO effectively subsidises tax-deductible expenditure at the marginal tax rate. So the higher the owner’s marginal rate, the bigger the tax breaks. The catch is that capital gains tax is also levied at the marginal rate, so the highest earner will pay more if the property is sold. Conversely, if the property has a positive cash flow, it’s best to put it in the name of the lowest taxpayer to minimise your tax liability.

As always, get pre-approval on your loan before you go looking for properties, and shop around for the best deal as there are many more loan options available for co-owners today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.