Thinking of buying with a friend, 50-50. Opinions needed.

sonastin

adonis10 wrote: »

a) Hypothetical figures - 30k each deposit, 450/month each mortgage. Say I want to save to do something so move out and rent out my room for 350/month. I think he should still pay 450 and I pay the excess 100. He disagrees and thinks it should be (900-350)/2 = 275/month each. My argument is that he'd be getting the benefits of living there, whereas I wouldn't.

b) He puts in 30k, I put in 60k. 900 mortgage. I obviously think that the mortgage is split 600:300/month, using the same ratio as the deposit.. He thinks it should be 50:50 but when we sell the profits are obviously split 1:2.

Thoughts?

a) the bit he is missing is the cost of the roof over your head. Either he puts in £350 "rent" for his room in the house or you add in your rent for wherever you're living on top of the mortgage cost and split that. The former results in the same answer as your calc. The latter is unfair if you've moved into a scummy sh!thole to save money as he's benefitting from the saving while still living in a nice place. Its unfair if you've moved in with new girlfriend to a swanky expensive pad because he's paying a "contribution" to your rent without having the benefit of the really nice place to live. Which is why the first option is fairer from the outset.

b) depends how big your deposit is as a % LTV and when you come to sell. Initially 1:2 is a fair split. Once you've been paying mortgage for 20 years, the equity he has contributed is more than half of yours because he has been paying the same capital repayments over this time (assuming you'll be going for a repayment mortgage - otherwise, where is the "profit" coming from and how will you fund the investment vehicle alongside the IO mortgage?) and the impact of this initial unequal deposit will have diminished. If he is happy for that unfair arrangement to happen you need it documented clearly and unequivocally. And you also need to address the loss if you are forced to sell at a lower price than you bought for.

On top of how you pay for this property, you also need to think about:

1) refurbishment and maintenance. One man's urgent DIY project is another man's could-live-with-it-for-another-20-years. How will you decide who and how gets to say whether work is needed, how much to spend, when to do it, etc. What if one of you enjoys DIY and one of you can't hold a screwdriver - will the clumsy one pay the handyman to do the job? What if one thinks he can do the work himself to save money but his standard of workmanship isn't up to the standards of the other?

2) who is going to live there? not just in terms of moving out and renting to a lodger but also partners, house guests - how long can they stay, how much are they expected to contribute if more than a couple of nights, etc.

3) how you dissolve this partnership. as others have said, what if one of you wants to sell and the other one can't afford to move elsewhere? what if the property loses value, whether down to NE or not? what if one of you dies - don't forget to make wills so that your beneficiaries understand their roles in this partnership - whether that be to sell to the other, own the half in trust until the other is ready to move etc.

4) how you are going to live together. Who buys the toilet roll and washing up liquid. What if one of you is more messy than the other. Cleaning rota. Sharing bills. etc. If you already share rented accomodation then a lot of this may already be sorted but attitudes can be different in your own place.


If you are struggling on the basics of how to pay the mortgage, I would be surprised if you could reach agreement on this level of detail. If you don't get most of it in writing now you risk spoiling the friendship by misunderstanding what you each want to get out of this purchase. Had you been in agreement on the initial stuff, I would say that you probably have a similar enough attitude that things could be more laid back. However in your circumstances I would be much more careful.

NAR

What if one of you in due course is unable to pay the mortgage due to a change in circumstances?
This arrangement sounds fraught with potential problems and I would swerve it completely.

DannyboyMidlands

This is a nightmare waiting to happen. There is no way that your contract will cover every eventuality.

I've lived with plenty of mates but I would never have wanted to buy with them. The relationship is too casual. There was always somebody deciding to go travelling, moving in with GF, quitting work......etc. etc.

Sharing a few hundred grand of debt with them doesn't bare thinking about.

Beckyy

If you can afford to buy a house yourself why would you go through the hassle of buying one with a friend? It's an expensive arguement waiting to happen.

Idiophreak

This isn't as hard as you're making it sound, OP. Everyone just takes out what they put in.

You'll have two parts of contribution, deposit and mortgage.

Say, for argument's sake, you do 50% deposit and 50% mortgage.

If you contribute 50% of the deposit, you get 25% of the whole thing.
If you contribute 66%, you get 33% of the whole.

The mortgage is the same principle. Pay the same each month? You get another 25% of the total.
Pay twice as much as him? You get another 33%.

There needn't be any correlation between the amount of deposit put in and the level or mortgage payments - as long as the overall equity split is established correctly.

His ideas on a) however are pretty messed up...so I'd think carefully about getting involved with him if he really thinks that's fair...

adonis10

sonastin wrote: »

a) the bit he is missing is the cost of the roof over your head. Either he puts in £350 "rent" for his room in the house or you add in your rent for wherever you're living on top of the mortgage cost and split that. The former results in the same answer as your calc. The latter is unfair if you've moved into a scummy sh!thole to save money as he's benefitting from the saving while still living in a nice place. Its unfair if you've moved in with new girlfriend to a swanky expensive pad because he's paying a "contribution" to your rent without having the benefit of the really nice place to live. Which is why the first option is fairer from the outset.

b) depends how big your deposit is as a % LTV and when you come to sell. Initially 1:2 is a fair split. Once you've been paying mortgage for 20 years, the equity he has contributed is more than half of yours because he has been paying the same capital repayments over this time (assuming you'll be going for a repayment mortgage - otherwise, where is the "profit" coming from and how will you fund the investment vehicle alongside the IO mortgage?) and the impact of this initial unequal deposit will have diminished. If he is happy for that unfair arrangement to happen you need it documented clearly and unequivocally. And you also need to address the loss if you are forced to sell at a lower price than you bought for.

On top of how you pay for this property, you also need to think about:

1) refurbishment and maintenance. One man's urgent DIY project is another man's could-live-with-it-for-another-20-years. How will you decide who and how gets to say whether work is needed, how much to spend, when to do it, etc. What if one of you enjoys DIY and one of you can't hold a screwdriver - will the clumsy one pay the handyman to do the job? What if one thinks he can do the work himself to save money but his standard of workmanship isn't up to the standards of the other?

2) who is going to live there? not just in terms of moving out and renting to a lodger but also partners, house guests - how long can they stay, how much are they expected to contribute if more than a couple of nights, etc.

3) how you dissolve this partnership. as others have said, what if one of you wants to sell and the other one can't afford to move elsewhere? what if the property loses value, whether down to NE or not? what if one of you dies - don't forget to make wills so that your beneficiaries understand their roles in this partnership - whether that be to sell to the other, own the half in trust until the other is ready to move etc.

4) how you are going to live together. Who buys the toilet roll and washing up liquid. What if one of you is more messy than the other. Cleaning rota. Sharing bills. etc. If you already share rented accomodation then a lot of this may already be sorted but attitudes can be different in your own place.


If you are struggling on the basics of how to pay the mortgage, I would be surprised if you could reach agreement on this level of detail. If you don't get most of it in writing now you risk spoiling the friendship by misunderstanding what you each want to get out of this purchase. Had you been in agreement on the initial stuff, I would say that you probably have a similar enough attitude that things could be more laid back. However in your circumstances I would be much more careful.

Thanks, I thought I was talking sense in part a. We won't have the place for 20 years, that's for sure.

Re the other points, we are pretty similar which is why we're considering it:
1. Neither of us are DIY fanatics and neither of us are interested in DIY projects. If something needs improving or maintaining, we'll do it. We know enough tradesmen/have family members who can help out with diy issues.

2. We deal with that when we come to it. I have a partner who has her own place so there's no need for her to be at mine for more than a night or two, for example. Same with him. Houseguests - if a mate wants to crash over after a night out, fine. We're obviously not going to count every litre of water we use. Neither of us will have people there for weeks on end.

3. This will be the most pressing issue but we'll discuss it and get it all in writing once agreed.

4. We're two 20 something blokes, we're not going to waste time arguing over such things. I'll buy some fairy liquid and once it's gone I'll expect him to get some, and vice versa. We'll agree that bills will be 50/50 because, more or less, we'll be using a very similar amount of water/elec etc. Cleaning rota? You must be kidding. We both agree that we could get a cleaner in for an hour a week. For a fiver each, it isn't worth us bothering to clean ourselves!

adonis10

Idiophreak wrote: »

This isn't as hard as you're making it sound, OP. Everyone just takes out what they put in.

You'll have two parts of contribution, deposit and mortgage.

Say, for argument's sake, you do 50% deposit and 50% mortgage.

If you contribute 50% of the deposit, you get 25% of the whole thing.
If you contribute 66%, you get 33% of the whole.

The mortgage is the same principle. Pay the same each month? You get another 25% of the total.
Pay twice as much as him? You get another 33%.

There needn't be any correlation between the amount of deposit put in and the level or mortgage payments - as long as the overall equity split is established correctly.

His ideas on a) however are pretty messed up...so I'd think carefully about getting involved with him if he really thinks that's fair...

Finally, a rational and calm response!

On a) we actually haven't discussed this but I used this as a hypothetical example in the event that this did happen. I would hope that he agrees with the logical explanation that I'd put the 100 with the tenant's 350 for my side of the mortgage.

sonastin

adonis10 wrote: »

As for repairs etc., we're both logical people with common sense and would agree as we have the same mindset on this sort of thing. If there is a hole in the roof we pay to get it fixed. If a wall doesn't need to be re-painted but one of us insist that we want it painted then fine, that person can buy the paint and paint it; not an issue.

Don't forget that preventative maintenance costs less in the long run. But it involves cost which is not strictly necessary. While you might both have plenty of cash now your circumstances might be different in a few years. To take your roof example - a few tiles slip. You can either pay to have those tiles replaced or you can take it as a sign that the roof is on its way out and replace the roof. If you go for the former, you will have to pay to have some more tiles replaced next time we have high winds and another batch of tiles go. Your friend wants to cut his losses and replace the roof on the first sign that it needs doing. You, being logical, see the sense in this. However in the intervening years you've been made redundant, have taken a significant pay cut and no longer have the vast reserves of savings. In order to maintain your cashflow, you would prefer to fix the tiles as and when they come off because you can't afford a whole new roof. This is also a logical response to your circumstances.

Don't regard it as "not an issue" - agree a set of principles on how you will make the decision while you are still on speaking terms. Otherwise a molehill like this could become a mountain later.

spadoosh

adonis10 wrote: »

Woah, I think you've all over-estimated the scale of the disagreement.

Think youve underestimated whats involved in taking on a mortgage.

As suggested there isnt a mad rush to get on the housing ladder, why would you want to do this with someone you dont want to live with forever i really dont know.

Someone on here told me (forgive me i cant remember the user) the best way to make money on a house is to live in it. by that they meant live there and pay off as much as the mortgage as possible. Your not planning on doing either. Your mortgage will be about 25 years. Would you be happy to still be in that house in 25 years if things didnt go your way?! Bearing in mind your friend or a lodger would be living with you aswell as possibly your family.

If you want to get on the ladder look at properties suitable for you and what you want, not sacrifices your willing to make for a friend.

Though if you do really want to go ahead with this i would strongly suggest going the BTL route and none of you living there if it money making your after.

BitterAndTwisted

You need to consider every eventuality, the cost/investment ratios and agree on a solution for each. Then have them written up in a formal agreement as there's no weaseling later if and when your circumstances change.

One of you loses their job.

One of you meets a fabulous new partner and wants to move them in.

One of you needs to relocate for work and get a lodger in to replace them in the house.

People in what appears at the start to be committed long-term relationships often come unstuck. With friends the chances are much greater. Consider very, VERY carefully the consequences of becoming formally and financially-linked with another person. For a very long time.

My own opinion is that if you don't have to buy together and could afford a property separately, buy separately