Exploring the Dynamics of Investing in Property With Family — Smart or Risky?

Many Australians achieve financial benefits by purchasing investment properties with family members — but does that mean it’s the right choice for you? We explore the ins and outs of whether it’s a good idea to buy property with your family.

Benefits of investing in property with family members

Purchasing investment properties with family members may offer several benefits, including:

Shared finances

Pooling resources with family members allows you to share the financial burden of buying and maintaining an investment property. This can make it more affordable and accessible, especially for individuals who might not have the financial capacity to invest on their own.

Increased buying power

With multiple contributors, you can potentially afford a more valuable or larger investment property, which may generate higher rental income (like NDIS investment properties) or appreciate in value more quickly.

Diversification

Collaborative investing provides the opportunity to diversify your real estate portfolio. This can help spread risk across different properties, locations, or types of real estate, reducing your exposure to potential market fluctuations.

Shared responsibilities

Co-owning with family members means you can divide responsibilities, such as property management and maintenance, among a larger group. This can ease the workload and reduce individual stress.

Family legacy

Investing with family can help build a long-term legacy, as the property can be passed down through generations, potentially providing ongoing financial security for your family.

It’s important to note that while there are significant benefits to investing with family members, there are also potential drawbacks. It’s essential to have a well-defined co-ownership agreement and open communication to navigate potential issues and ensure a successful investment partnership.

Potential issues of investing in property with family

Depending on your family dynamic, it’s important to consider the following disadvantages before deciding if a family investment property is right for you.

Financial disagreements

Money matters can strain family relationships. Differences in investment goals, financial contributions, or expectations can lead to disputes and conflicts.

Strained relationships

Disagreements over property management, rental income, or property-related decisions can strain family bonds and lead to long-lasting conflicts.

Legal and Inheritance Issues

The legal and inheritance aspects of co-owning a property with family members can be intricate. You may need legal documents to define ownership shares and address inheritance matters, which can lead to additional costs and complexities.

Exit strategy challenges

When it’s time to sell the property or if a family member wants to exit the investment, determining a fair value and executing a smooth exit can be difficult.

Market fluctuations

Real estate markets can be unpredictable, and property values may not appreciate as expected. Family members may have different risk tolerances, leading to disagreements about when to buy or sell.

To mitigate these disadvantages, it’s crucial to establish a well-defined co-ownership agreement that addresses issues like financial contributions, decision-making processes, dispute resolution, and exit strategies. Open and honest communication among family members is also vital to ensure a successful and harmonious investment partnership.

Types of investment properties and investment objectives

Different types of properties will appeal to different objectives, so it’s important to have a solid idea of what you’re looking to get out of the investment.

Short-term/holiday accommodation

Rental income: Short-term rentals often generate higher rental income compared to traditional long-term leasing. You can charge premium rates, especially during peak vacation seasons or special events.

Personal use: Another advantage is you have the flexibility to use the property for personal holidays or short stays when it’s not rented out, allowing you and your family to enjoy your investment.

Property appreciation: In popular tourist destinations, property values may appreciate more quickly than in other areas, potentially leading to capital gains over time.

Residential rental properties

Steady rental income: With long-term lease agreements, residential rental properties typically provide a consistent and steady stream of rental income. Regular rent payments from tenants can contribute to a reliable cash flow, which may help cover property expenses and provide a source of passive income.

Long-term appreciation: Over time, residential properties often appreciate in value, which can lead to capital gains when the property is sold. Real estate historically tends to appreciate over the long-term, making it a potentially profitable long-term investment.

Commercial property

Higher rental income: Commercial properties typically generate higher rental income compared to residential properties. Tenants, such as businesses and corporations, are willing to pay premium rents for commercial spaces.

Professional tenants: Commercial properties often attract professional and corporate tenants who may have a vested interest in maintaining the property and adhere to the lease terms, leading to fewer issues with property damage and non-payment of rent.

Longer leases: Commercial leases often have longer terms than residential leases, providing more stability and reducing the turnover of tenants. Longer leases mean less frequent vacancies.

Personal use: if you have a family business, purchasing a property for business purposes could lead to a reduction in rent expenses with the potential for future property appreciation.

NDIS investment properties

Higher rental income: Compared to regular residential properties, NDIS properties can generate higher rental income thanks to the SDA payments made by the government as part of the tenant’s (participant’s) NDIS plan. It’s not uncommon for NDIS properties to generate yields in excess of 15% p.a.

Long-term lease agreements: Due to the housing shortage for people with disability, the demand for a suitable home is high. Once participants are placed in your NDIS investment property, there’s a chance they’ll want to make it their forever home.

Social Impact: Investing in NDIS properties can have a positive social impact by providing safe and suitable accommodation for individuals with disabilities.

Investing in property with your family is a decision that comes with both opportunities and challenges. When considering the types of investment properties and investment objectives, it’s essential to align your investment strategy with your goals and preferences. Ultimately, the choice of investment property and investment strategy should reflect your financial goals, risk tolerance, and long-term vision for building wealth and financial security.

If you and your family are considering a NDIS property as an investment, please get in touch with us today so we can set the wheels in motion.