The latest data from Commonwealth Bank of Australia (CBA) indicates that the number of mortgage applications with two or more applicants is increasing, from 64% in 2014 to 67% in 2016. In contrast, the number of single applicants for mortgages is slowly trending down.
When siblings join forces
Twenty-five-year-old Yesim Sepek decided to join forces with a sibling in her bid to invest in property. She and her sister, 22-year-old Derya, decided to pool their resources and purchase an investment property in the suburb of St Marys in western Sydney.
At first, Yesim wanted to tackle investing on her own, but quickly realised that though she could handle the repayments, she couldn’t cough up the upfront costs of a deposit and stamp duty.
She then considered purchasing a property through a family trust with her mother and four younger sisters, but decided to go joint with just one of her younger siblings due to concerns over “hidden costs” in the trust structure.
“We discovered that the trust option might not be the best way to move forward because the benefits of the trust weren’t going to be maximised,” Yesim said.
However, applying for a joint mortgage wasn’t an easy decision either. Yesim and her sister were both anxious about the prospect of being “stuck at the hip” financially.
“If you do invest together you are going to be stuck at the hip throughout your whole portfolio unless you…decide to sell it off or buy each other out. If [Derya’s] goals change or if my goals change, then we are technically liable for all of the debt with only half of the rental income. That was a bit of an eye opener.”
That’s just one of the risks that come with signing up for joint mortgages. With house prices so high, particularly in Sydney and Melbourne, partnering can often be the only means of ensuring affordability.
Though Yesim and Derya are splitting the costs of the purchase and mortgage 50/50, the bank will see them as being individually liable for the whole mortgage debt. This doesn’t just hinder borrowers who may decide to strike out on their own later on, but can be very unnerving for borrowers in their mid-20s, who do not know what the future holds.
A stepping stone, not a long-term strategy
Yesim and Derya discovered that by using joint mortgages as a stepping stone rather than relying on it as a long-term strategy, they could keep their relationship and finances intact.
They bought a rundown house in St Marys, with the goal of knocking it down, subdividing the land, rebuilding the structure, and then flipping it for a profit.
“It is a little, old, rundown house which is rented at the moment — that’s another thing, it is not too much of a strain on the pocket. We are hoping to knock it down and build a duplex and sell them off,” Yesim said.
“It is in for the DA [Development Application] at the moment. The council usually takes approximately three months to get that approval, so it is just going to be rented out until then. We are hoping to commence in February.”
The purchase price of the property was $467,000. The siblings have pegged the cost of reconstruction at roughly $400,000, and are hoping to sell each duplex for about $600,000 to $650,000 each.
“We are hoping to make $1.3 million, close off the debt, which will be close to $900,000, and then whatever the remainder is what we are hoping to take home.”
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