Buying Property With Siblings: What Should You Agree on First?
Nick Donato is a financial adviser at Guidance Financial Services who specialises in helping clients all over Australia aged 30 to 50 get their financial foundations sorted, so they can build wealth and have more choice in life through our Wealth Builder program. You can learn more about it here.
Buying property with a sibling can help you combine deposits, borrowing capacity and skills.
It can also leave both of you tied to a large debt and an arrangement that is difficult to leave.
Who owns what if one person contributes more? What happens if your sibling wants to sell? Does renovation work count as equity? And what happens to their share if they die?
In this episode of the Wealth Builder Podcast, Paul and I examine two sibling property arrangements that ended in court.
One involved two brothers, adjoining homes and a sudden death without a will. The other involved two sisters, a duplex and 1,150 hours of work that did not receive the value the person completing it expected. Listen to the episode to hear more about the cases and read about the key takeaways below.
What should you consider when buying property with siblings?
You need to agree on more than the deposit and mortgage repayments.
Before buying, discuss:
Who will own what percentage
What happens if one person contributes more
Who pays rates, repairs and renovations
How major decisions will be made
What happens if one sibling wants to sell
How a buyout will be valued
What happens after death or incapacity
These questions can feel unnecessary when you get along well. That is precisely when they are easiest to answer.
What happens if one sibling wants to sell?
Your agreement should explain whether one sibling can leave, whether the other person gets the first opportunity to buy their share and how the price will be set.
It should also cover what happens if the remaining sibling cannot afford the buyout.
Without an exit plan, one person may feel trapped while the other cannot access their money.
This matters financially too. When people borrow together, a future lender may consider the full joint debt rather than only the portion they think of as theirs.
Does paying more mean you own more of the property?
Not automatically.
You may own the property equally even when one sibling contributes more towards the deposit, mortgage or renovations.
Before making an unequal contribution, decide whether it:
Changes the ownership percentages
Creates a debt owed by the other sibling
Will be repaid when the property is sold
Will make no difference to the final split
Leaving that unanswered gives both people room to form a different view of what is fair.
Does unpaid renovation work count as equity?
I would not assume it does.
In one case from the episode, two sisters developed a duplex together. One sister’s husband claimed he completed 1,150 hours of work on the property.
His claim for the value of that labour was rejected.
The amount involved was said to be more than $260,000, which is why the outcome surprised both Paul and me. We discuss what he may have done differently and why informal sweat equity can become such a problem.
Before substantial work begins, decide whether it will be paid, invoiced, repaid at settlement or exchanged for a larger ownership share.
What happens to the property if a sibling dies?
The person you buy with may not be the person you eventually need to negotiate with.
In the other sibling case, one brother died suddenly at 43 without a will. His spouse and estate then became part of an already difficult property dispute.
Your property agreement and estate planning need to work together. Everyone should understand who can inherit a share, whether the surviving sibling can buy it and what happens if they cannot.
The full episode shows why these details matter through two deals that began with trust and ended in court. It is worth listening before you buy, build or renovate property with a sibling.
Get Advice Before You Buy Property With Family
At Guidance Financial Services, we can help you assess how a joint property purchase fits with your wider finances and future plans before you commit.
This article is for educational purposes only and does not take into account your individual circumstances. If you would like tailored advice, we can help you work through the numbers properly.
