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Mates And Mortgages Can Work

Five friends in their early 20s worked together to buy their first investment property ... and it turned out just fine, writes Stevie Waring.

By: Stevie Waring

30 December 2023

Lochie didn’t have enough money to buy an investment property by himself, but when he and four friends banded together to create a meaty deposit ... they figured they’d go all out.

Here’s how five friends in their early 20s worked together to buy their first investment property.

What Got Them Started?

The idea of investing as a group had been in the works for years since three of the five friends shared just one room in a Dunedin flat in 2010.

Each member of the group wanted a way to get onto the property ladder as early as possible, but obviously it wasn’t possible to go it alone. The initial game plan was to renovate an existing property in Oamaru, but as two more friends joined the group, the type of investment strategy changed.

They all realised they weren’t builders and, coupled with the fact they were scattered around the country, it meant they needed a low-maintenance investment.

Which Investment?

The group settled on a four-bedroom, 2.5 bathroom, standalone house in West Auckland. The sale price was $925,000.

For a first investment, such a large property was very impressive. “We thought we might as well kind of go all out,” was Lochie’s view of the purchase.

Everyone was able to front $50,000, and all would contribute equally to top-ups and expenses. Growth was the big drawcard for Auckland.

To buy the property together the five friends formed a company called Room 4, the number of the room three of the friends once shared.

Lessons Learned

Buying property is complicated enough, but it becomes even more complex when you’ve got multiple parties buying and, specifically, when those people aren’t in a relationship. This is because banks pool the income of partners or spouses. But, as a rule, if friends buy a property together the banks assess their incomes individually.

For instance, let’s say you and a friend are going 50/50 on an $800,000 property. The bank assesses whether you both can afford the mortgage individually. But if you were a couple, they’d add the money together and call it household incomes.

This is why it can be harder for friends. Lochie said the experience was quite intense. There was a lot of paperwork to go through, and there was a lot of back and forth with the banks.

Many of the banks didn’t want to touch an application with five people involved. In the end, ASB did assess the application on their collective incomes ... and they gave them the “yes” too. How income is assessed is at the discretion of the bank. They’ll chop and change depending on their lending appetite at the time.

The Future

The five have their sights set on a Christchurch property, but beyond that there’s no real timeline.

Lochie says the initial plan was to get on the ladder as early as possible and get as many properties as they could. They’ll go from there, but it will get to a point where the friends will want to settle down, start families, and eventually buy their own homes.

And that’s OK. “We’re not going to be investing with each other till we’re 70,” Lochie points out.

He’s found a lot of pros by going down this investment journey with his mates. As a group you can afford a nicer, better property than you otherwise would because of pooled resources. The downside is that the application process is tough and can be more restrictive when buying progressive properties. But even more important, the last thing you want to do is ruin a friendship if everything turns sour.

This is why Room 4 got a shareholders’ agreement drawn up in 2022. Lochie says it’s bulletproof and covers everything from redundancies to exit strategies.

Advice For Others

Lochie says this way of investing gets overlooked because it can be quite complicated ... in every way. But assuming everything goes well, it can be quite lucrative. He says he would absolutely recommend investing with a friend, but probably wouldn’t recommend doing it in a group of five.

Next Steps

Lochie’s experience might resonate with some potential investors. Maybe you can’t afford to invest right now, so you want to go in with friends.

If you want to discuss your options, the next step is to book a Portfolio Planning Session with us here at Opes Partners.

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