Groundwork the Key to Making Co-Owned Property Investment Work

Whether it’s by choice or out of necessity, more and more Australians are entering into property investment as co-owners, and many are discovering that making the partnership - and the investment - work is not as simple as it might seem. But, according to Matthew Mousa from TLK Partners in New South Wales, there are certain steps that can be taken to ensure that both the ownership and the investment succeed in the long-term. And one of the key steps involves groundwork ahead of time

Firstly, Mousa says, Australians entering into joint ownership need to realise the severity of a decision that involves more than just putting together the money for a deposit, raising a loan or mortgage, and signing on the dotted line. It is, instead, a long-term commitment to both a partnership and an investment that could end up dominating the lives of both partners, and may not last. And for that reason, a great deal of goal-based planning and risk assessment has to carried out before the deal is signed.

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Setting Off On the Right Foot

 As the success of the investment hinges on the property, Mousa says, the first step partners should take involves the choice of the right property that’s suitable for bringing in a constant rental income stream, and also has the potential to provide a substantial return on investment from capital gains when it’s sold.

To achieve these goals, it has to be selected based on factors such as its location, neighbourhood, access to amenities and its design, structure and condition. And as it is going to purchase in a partnership, the ultimate decision on whether it fits the bill should be a mutual one and determined by shared goals.

Dealing With the Risks

Co-ownership means everything, including the financing, the workload, and the risks affect both partners. And as far as risks go, the biggest lies in accepting that both partners are held jointly and severally liable for any debts and other liabilities incurred by either of them with regard to the property. These include mortgage or loan repayments and any other costs involved in running and maintaining it, such as utility bills, repairs or renovations. So if one goes into default, both do, and what seemed like a decision that could cut expenditure for both partners, may end up in nightmare costs for one.

Conflict can also arise as a result of differences of opinion regarding decisions over whether or when to refinance, the income and expense split, and what happens should one partner decide to opt out, become bankrupt, or die.

Reaching an Agreement

For the investment to work, a comprehensive co-ownership agreement is required which covers these issues and their outcomes before they arise, and includes an exit strategy should one partner leave. And it should be drawn up before buying the property or raising the loan, according to Mousa.

It should also go further into dealing with individual and personal rights and obligations regarding management, maintenance and financial responsibilities of each partner, and not just involve selecting which of the two main forms of co-ownership recognised by Australian property law when it comes to an investment property, should be adopted and declared on the transfer title.

Types of Co-Ownership

The choices are Joint Tenancy, and Tenancy in Common, and both deal primarily with shares of interest, and the distribution following the sale of the property or death of one partner. Joint Tenancy, which is the default option should an alternative option not be stipulated, assumes equal interest in the proceeds from the sale of the property, and, in the case of one partner’s death, ownership passes directly to the remaining owner or owners.

Tenants in Common, however, is less cut and dried. It allows for differing shares of ownership at the start, and that shareholding can be changed at any time, subject to mutual agreement. Each owner can deal with their own share as they wish, including selling it or bequeathing their share to a beneficiary of their choice, which may or may not be the surviving co-owner or co-owners of the investment property.

An investment property co-ownership, like the property itself, should be built on strong foundations. Making sure they can handle natural disasters and both foreseen and unexpected events, will increase the likelihood of survival and a positive outcome, says Mousa. For more advice and tips on investment property acquisition, browse the TLK Partners website.

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TLK Partners Wealth Management Companies Kingsgrove, Beverly Hills | Tax Accountant & Agent | Property Advisers are financial management, retirement planning and wealth advisers serving enterprises and private individuals who hope to take care of their future through sound financial management. Visit their website or contact them at (02) 8090 4324 for an appointment to discuss your financial management and investment needs.

This material is of a general nature only, it does not take into consideration your financial circumstances, needs or objectives. Before making any decision based on this content, you should assess your own circumstances, seek professional advice or contact our office to be directed to the appropriate professional. Whilst all care has been taken in presenting the material neither TLK Partners or its associated entities guarantee that the material is free of error and, the information may have changed since being published.

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