Could buying with a friend be the right retirement financing solution for you?
By Kirsten Magnusson
There is an increasing number of women who find themselves alone and financially unprepared as they approach retirement. Women who may have sacrificed years of earning superannuation, by being at home raising the family, are finding themselves worse off than they could have anticipated. Similarly, those who have experienced unexpected hardships such as separation or divorce, or being suddenly widowed, are facing a future of uncertainty. Foundations previously thought to be rock solid, can be dismantled more easily than many expect. Nobody expects their marriage to go bad, or their best laid plans to go awry, but it can happen to any of us and if you think this might be you, it’s time to start thinking about some creative solutions for your future security.
Making decisions around property investment can be particularly challenging if you don’t have the capital or the income that will get you across the line for a decent mortgage. Women tend to have surprisingly less superannuation than men, and if you have found yourself in any of the situations mentioned above, it can be a real struggle to work out how to forge on alone. It’s anybody’s guess as to whether or not you’ll re-partner, or in fact if the relationship will last for the long term.
So, you now find yourself in the challenging, but ultimately character defining position of having to decide what’s next. Will you be able to cover all of your living expenses on one income? Can you manage a household alone, with the maintenance and obligations that come with it – especially as you age and potentially deal with illness or frailty? Where will you live? Is living alone something you think you would be suited to? For many, the loneliness and isolation can be debilitating, whereas for others it is a joyous freedom not yet experienced in their lifetime. All of these questions can be confronting and, in reality, living alone in early retirement might be ok, but as we age and deal with increasing health issues, fewer of us agree a life of solitude is a solution.
Well good news ladies – because many of us have the perfect solution right under our noses – our best friend! The one we shared our deepest secrets with, the one that we trust with our most personal thoughts and feelings. The one that has been there through all of our highs and lows, our joys and triumphs. Your relationship with your best friend, in reality, may be the strongest and most committed long-term relationship you have, or will ever have. So why wouldn’t you buy a house with her rather than a romantic partner!
Buying a property alone can be expensive and overwhelming and if you and your bestie can review your shared goals and find some congruence, why not buy a house and plan your retirement together? On the upside, you have company, which is comforting, you can share expenses, and it might even make it easier for you to travel - knowing someone else can stay behind and take care of things. Of course, there are downsides, but then you enter a pros and cons situation and your personal values will ultimately help you make decisions there.
There are however some things to consider before you take the leap, to protect you both and to make sure that whatever happens, the property does not get in the way of your friendship, or your individual futures. If you have been friends for a long time and have an open and honest dialogue, then you can probably anticipate how you might get along together as ‘housemates’. Taking a trip together might be a good test run – if you haven’t already in your year’s of friendship. Travel is a great way to explore the nuances of your friendship, as both of you are put into various pressure situations. A week in a foreign environment, sharing a hotel room and having to budget spending, or plan activities together, tests all the essential components of a friendship – patience, selflessness, financial habits and, most of all, expectations.
Buying a property is a big financial commitment, not only because of the ongoing monthly repayments, but also the responsibility for the regular expenses involved in running and maintaining the property. For many it involves an entirely different approach to the one they have been using for decades with their previous partner – because the dynamics are different. You and your friend should spend some time going over your finances, being as honest and open as possible about your own expenses, spending, savings and debts. This will give a true picture of each of your financial strengths and weaknesses. Drawing up individual budgets is a good exercise to learn exactly where your money goes. Knowing each other for what seems like forever, does not mean you have any idea about what each of you does with your money. Discuss what your current budgets are and how they will have to change to manage the new expenses you will both be committing to.
Once you’ve decided that you can buy a house together, it’s important to plan ahead and have a clear understanding of what you both have in mind for your futures and what your individual responsibilities may be. Knowing what your health care plans are is a crucial part of this. Illness is inevitable and if one of you needs regular or even full-time care, this will impact on the dynamic of your living environment. Sketch out what this might look like and be clear about how this will be navigated if and when the time comes.
Social interaction is important too. How much family interaction will there be in the home – will one of you have children and grandchildren coming and going regularly? Does one of you regularly have friends or family coming to stay for weeks or more at a time? Maybe one of you wants to go travelling for extended periods, so together you’d need to think about how you’d make sure this could still happen, but not impact on the joint financial obligations. The best approach is to sit together and map out your ideas and plans for the years ahead. Take some notes and sketch out some solutions, so that you can then get legal structures put in place to secure these decisions and protect you both. There are different co-ownership structures to choose from, each with their own risks and benefits. It’s up to each of you as individuals to make the best decision for yourselves and your families – hopefully with independent legal advice. There are plenty of free co-ownership templates available online that you can look at. These will help you with some background information, and allow you to think of questions to consider, before you start paying professional fees to a financial advisor or a family lawyer.
Once you have chosen the most suitable co-ownership structure for you both, you should get a co-ownership agreement drawn up by a professional. Talk to a real estate agent and ask for a recommendation to a real estate lawyer, if you don’t have someone who can help already. When you’re buying the property and signing up for the mortgage together as friends not spouses, it’s important to make good choices about property co-ownership, for financial and tax purposes, but also as consideration for family members in the event of either, or both of your deaths. This will cost a few hundred dollars but is well worth it for the clarity and reassurance it will provide in the future. The agreement should clearly state the ownership structure and it will also clearly detail what happens if one of you wants out, if one of you dies or if the relationship deteriorates; plus both of you will need to update your wills. Creating a professional relationship out of your personal one requires a mature and objective approach. By setting up a joint bank account for expenses, outsourcing maintenance and putting direct debits in place for mortgage and bill payments, you can separate the business from the personal more easily.
The agreement can also outline all the other points agreed upon, such as division of expenses (like cleaning and maintenance of the property, rates, utilities etc.), agreement on direct debits for regular payments such as the mortgage, and division of management tasks like who will take care of the garden? Who will go to the body corporate meetings if relevant? Or who co-ordinates tradesmen for example so the property is regularly maintained and everything’s kept in good working order. All of these ‘jobs’ need to be considered and allocated in advance to avoid confusions and resentment in the future. Remember there are professionals with expertise to advise you on things such as this. Getting advice from when you are putting things in place, can make everything so much easier to undo, in the unhappy event of an irreversible conflict, incapacity or untimely death.
Buying a property with your best friend can be a fantastic experience - if managed well. It’s important to protect both of your personal and financial futures however and know also that the future is largely unpredictable, especially when ageing is thrown into the mix. With precautions in place that anticipate most scenarios, you will both be able to reap the benefits of your shared investment, and experience a deeper level of friendship as you enter into a new kind of partnership together, just make sure you have plenty of room for gin and tonic in your budget.