You’re interested in buying an investment property, but don’t think that you can raise enough money for a deposit or have enough borrowing power. Plus, you’re really concerned about meeting your monthly mortgage repayment obligations should interest rates rise. Sound familiar? If so, then maybe you should consider buying an investment property with family or friends, which is also known as co-ownership property investment.
Co-ownership property investment is where you and family or friends enter into a joint ownership agreement known as a tenants-in-common agreement. This type of agreement allows you to buy an investment property sooner and to build your wealth faster.
Let’s firstly look at the benefits of buying an investment property with family and friends.
There are many benefits associated with buying an investment property with family and friends. These are as follows:
- It’s Easier to Raise the Money Needed for the Deposit
Rather than having to save for years for a deposit, co-ownership can reduce this to months.
The 20 percent deposit you need to save to buy an investment property can be divided amongst the family and friends who are entering into the co-ownership agreement. For instance, if you need to save $80,000 and three friends are interested in co-ownership, then you each save $20,000 for the deposit.
- You Can Combine Your Borrowing Power
Instead of you relying on your borrowing power, all co-owners are considered.
The assets, income and other financial commitments of all co-owners is taken into consideration when calculating borrowing power. This means you can possibly borrow more.
- Shared Costs
All investment property costs are shared between co-owners.
Purchase price, legal fees, stamp duty and conveyancing, as well as all mortgage repayments, management and maintenance costs of the co-owned investment property are split between co-owners.
- Regular Rental Income
The income generated by the co-owned investment property is shared.
If the co-owned investment property is positively geared, then all co-owners will collect a regular income from the property.
- Tax Benefits
All losses associated with the co-owned investment property can be deducted from tax.
If the investment property is negatively geared, then co-owners can deduct their incurred loss for each year of ownership from their income tax.
- Capital Value Increases
If the value of the co-owned property increases, co-owners share the profit.
Over the years of ownership, it is highly likely that the value of the property will rise. Therefore, when the property is sold all co-owners will receive a portion of the sales price.
With benefits come disadvantages, and it is important to consider these before making any financial decisions. The disadvantages of buying an investment property with family or friends are as follows:
- Sound Legal Advice is a Must
Before you buy a co-owned investment property, seek legal advice.
Failure to seek legal advice can be costly. Therefore, make sure you have a solicitor draw up your co-ownership agreement, rather than opting to do this yourself or just shaking on it. A professional co-ownership agreement defines the rights and obligations of all co-owners. Plus, it will stand up in a court of law.
- Co-owner Disputes
There can be disputes over financial payments and also returns.
Appoint a conflict resolution manager, who does not have a vested interest in the property, right from the start of the co-ownership agreement. This will reduce tension should a dispute arise.
- Co-ownership Must Be Treated as a Business
You need to be able to separate business from your personal dealings with family or friends.
It is important to consider co-ownership as a business and leave your personal feelings aside when discussing your investment property.
Interested in knowing more about co-ownership and buying an investment property with family or friends? If so, then contact eChoice TODAY.