The Minefield Of Doing A Golden Girls
I’m 55, and for while now, my girlfriends and I have been discussing the idea of sharing a house together so that we can enjoy each other’s company and support each other in our old age. Before committing to this type of living arrangement, is there anything that I need to consider from a financial point of view?
Louise, Adelaide
Co-housing with good friends has advantages. Each person may be able to sell an existing home, thus freeing up more money to buy a nicer home together in which to enjoy the twilight years. From a financial and logistics perspective, however, it brings challenges.
First, you need to determine the way in which you will own the property. Most people who are not married or in a de facto relationship would generally buy as “tenants in common” where each share can be specified (for example, 50:50 or 70:30). Some people also use unit trusts.
You should see a lawyer for advice on how to structure the ownership arrangement and help you with any of the documents. Another option would be for one person to own the property and the other, or others, to pay rent to that person, but agree that you are living together. Think about renting a place together first, that way you can try-before-you-buy.
The second issue is debt. If you have a mortgage on the property, owners will be jointly liable for the mortgage, regardless of the size of their share. You don’t want to find yourself liable for any shortfall in mortgage payments on your co-owner’s debt in the event they default. If you can buy the property outright, that would negate this risk.
Another financial consideration is renovations or repairs. What happens if one of you wishes, and can afford, to renovate and the other or others don’t have the desire or money to do so? Make sure you set a clear framework for how expenses associated with repairs and renovations will be funded before you buy. These are considerations that need to be worked out upfront, especially if one person has a bigger share of the property than the other.What would happen if you renovated the kitchen, for example? An idea would be to allocate an agreed amount to a renovation, repair and maintenance fund.
Also, consider the “what if” scenarios that could trigger financial issues for you. What if one party wishes to leave the co-housing arrangement? Does the other party have first right of refusal to purchase their share? If the remaining party purchases another’s share, how will the cost of stamp duty be managed (as this would need to be paid on the market value of the share being transferred)? If this share is to be sold to a third party, who is responsible for this process – and does the other co-owner have a say in who their new partner will be?
What if one person invites someone to move in without the consent of the other? What if one party dies? Again, does the other party have first dibs on purchasing the other share? If it is left to a beneficiary, what happens then?
One of the biggest quandries is the aged care question. If you need a bond for aged care and are relying on the equity in your home for that, then what would happen? What if one person needs to move into supported aged care? What if you face irreconcilable differences? What if one person has their partner there all the time?
It is advisable to put in place a legal agreement that addresses these issues, and to also prepare an exit strategy if things don’t work out. So while co-housing is a fabulous idea, there are real challenges in practice. One of the best ways to minimise your risk of things going pear-shaped is to keep to one like-minded co-owner, have frank and fearless discussions about the risks and ensure you have appropriate legal agreements in place.
By Kate McCallum, financial adviser and author of The Joy of Money, multiforte.com.au
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