Syndicates offer hope for first-time buyers

Syndicates offer hope for first-time buyers

12 May, 2016

First-home buyers struggling to gain a foothold into heated property markets could consider purchasing in a syndicate to improve their buying power, says Harcourts NZ CEO Chris Kennedy.

There’s a lot of talk about how difficult it is, in heated real estate markets, for newcomers to buy that first property, Mr Kennedy says. “One answer to that could be to buy property in conjunction with a group of others.

“It’s a common enough structure in the commercial property world, where groups of individuals often pool resources to purchase properties. There’s no reason why it shouldn’t also work for residential properties.

“We’re already seeing a rise in the number of home ownership partnerships between parents and their children, to assist the younger generation into their first home. I imagine, as key markets around the country remain heated, we will start to see more groups of individuals working together to get that first property.”

The trick to a successful property syndicate is doing your research and making sure you have a water-tight partnership agreement, so there is an agreed course of action, should any problems arise or circumstances change, Mr Kennedy says.

“As well as making sure you know and like the people you’re buying with, you need to consider all eventualities, and make sure it includes a dispute resolution process.”

Key matters the syndicate agreement should cover off include:

• What happens if one partner wants to sell before the others?
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• What happens if different partners are investing different amounts?
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• How will any maintenance and operating costs be divided?
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• How will any capital gains or losses be divided?
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• How will the mortgage be structured and repaid?
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• Are you buying as a company, or as individuals, or tenants in common?

It’s about having all your bases covered, Mr Kennedy says. “In the end you’re in a partnership, and while they can start off smoothly, partnerships can turn bad very quickly if people disagree.

“But despite the need to be thorough and transparent about your agenda, in setting up a property-owning syndicate there is still a lot of merit in using this method to gain entry to the property market.”

Mr Kennedy suggests the best way to set up a syndicate for joint property ownership is to limit the number of people involved, and to give it a fixed lifespan that everybody agrees to.

“The more people who are involved the harder it will be to keep everybody on the same plan. I’d suggest two or three is ideal, or perhaps two couples.

“And by agreeing to a fixed period of time you can focus on reducing the mortgage as quickly as possible, maximising your equity, so you’re in a position to make purchasing your own property your next step.

“The longer you stay in a shared ownership agreement the bigger the likelihood that people’s plans will change.

“Buying that first property is the hardest thing to do, if buying in a syndicate seems like the best way to get someone over that first hurdle, I’d say do your homework and go for it.”

ends

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