Co-ownership: can sharing the cost work?

If you are keen to invest in property but finding it hard to break into the market, either because you don’t have enough equity or because the area you want is just too expensive, don’t despair: there is a way!  Property co-ownership is becoming more and more popular, particularly with gen X and Y members for whom the Great Australian Dream of a free-standing home on a quarter-acre block seems like just that: a dream.

Whether you are entering into the arrangement with your parents, siblings, friends or business associates, to live in or purely as an investment, it’s important to consider the pros and cons.

Pros

• Halving the initial amount of money needed to purchase the property (if that’s how you decide to split the costs): this is the biggest pro of all. A deposit of 10% as opposed to 20% (or whatever is required for your mortgage) is a huge saving for you, both initially and when it comes to repayments.
• Dividing maintenance/renovation costs: again, more huge savings can be made here.  If you buy a fixer-upper, less of your hard-earned cash will be spent doing the fixing; throughout the term of the mortgage, less of your cash will have to go into maintaining or repairing the property. Win-win!
• A greater choice of potential investments: more money to invest means more choice of investment properties, which in turn can mean greater rental returns.
• Repaying your mortgage in a shorter time period: a 30-year mortgage sounds daunting to most home buyers; 15 years, not so much.

Cons

• Things can go wrong: fallings-out occur, the economy can go belly up, people lose jobs or fall ill. This is when we discover the often difficult truth that money can come between even the best of friends, or family members. This is why obtaining independent legal advice is so important, regardless of whether it is your parents or friends you are investing with. Ensure you have a legally binding agreement drawn up, and – worst-case scenario – be prepared to have to rely on it!
• Be aware of the ATO rules regarding property partnerships. No matter what you agree on orally or in writing, unless you have a legally binding partnership agreement drawn up, net rental profits and losses will be divided according to your legal interest in the property.
• Dividing rental income/paying your share of rent to co-owner: unfortunately, if you lease your co-owned property, you will only receive half (if that is how the ownership is split) of the rental returns.  Alternatively, if you are living in the co-owned property, that means paying your rent to the other owner. This isn’t actually a problem, just so long as you keep on paying that rent!
• The devil is in the details: ensure your agreement covers all possible outcomes, such as potential buyouts, sale timeframes and so on.

Property co-ownership can be a sure-fire way to get into the property market with less money and less potential risk; just make sure you do it right and you’ll be laughing all the way to the bank!