Financing your first investment property can be a daunting prospect, especially if you are planning to go it alone without help from family members. If you are in a relationship, however, there is a way you can maximise your borrowing potential by combining your partner’s income with your own when you apply for a loan from a lender. Investment experts believe that this concept of pooling financial resources when starting on the property ladder can help give you that kick-start you need in a rapidly rising and competitive market.
A recent article* in Your Investment Property suggests that applying for a double income or joint loan if you are not married but in a relationship is a smart way to greatly reduce the upfront costs and fees associated with investment loans, as well as increase your borrowing power and your ongoing ability to re-pay the loan. It is also often the case that one person will own more collateral that can be used to secure the loan.
It goes without saying that buying an investment property with your partner can be a huge financial (as well as emotional) commitment. Investment and legal experts agree that people considering a joint or double application loan should contact a solicitor who can draw up relevant contracts – similar to prenuptial documents – or a ‘Binding Financial Agreement’ to ensure each party is legally protected in the event of a relationship breakdown or other change of circumstances. This can be a particularly important step for people who had existing investment property or other major assets before their current relationship began. Taxation expert Eddie Chung, partner and advisor at BDO believes that entering into such a financial partnership with someone means that you are inextricably entwined with them until one or either of you decides to call it quits. Having a legally binding agreement that clearly sets out matters such as buying out the other partner or what happens if one party to the agreement dies is critical to ensuring a fair and equitable outcome for everyone.
Other factors that should be decided or settled before you go ahead with the loan application include:
- Agreeing on the type of investment loan you would prefer, including details such as repayment terms, lines of credit, interest only repayment periods or redraw facilities. You should also agree on who will be responsible for repaying the loan.
- Deciding whether you want both of you authorized to make changes or updates to the loan (often referred to as an “Any to Operate” authority level), or whether you want to make access to your account only available if both of you are present (sometimes called “All To Operate”). The level of authority you decide on will probably also change the way your access to electronic banking will work.
- Agreeing an investment strategy that includes details on the length of time you intend you keep the property, whether you wish to outsource the management of the property and tenants or do it yourself. Deciding what type of property you’d like to invest in is also an important component of such a strategy, and choosing between off the plan properties, existing apartments, and townhouses or detached houses may require months of research and advice from property investment experts. Unless one of you has agreed to be the main decision-maker, both of you should participate in the search and selection of suitable properties (this can also help to avoid any disputes later on).
Having these financial aspects settled before going ahead can provide you with great peace of mind, as well as provide a steady foundation for your relationship going forward. As Homestart finance CEO John Oliver suggests, buying an investment property together can be a big step in for any couple, and can often signal the beginning of a new level of commitment between two people. With this in mind, no one wants unresolved financial issues or questions to adversely affect the nature of the relationship. The more organised you are in terms of managing the financial aspects of an investment loan, the more likely you will be to succeed in building a successful property portfolio together in the future.