An increasingly common way to get into the property market these days is buying a property with another person. Whilst there are a whole host of reasons as to why you might find yourself buying a property with another, the most common matchups are:
• With a friend or sibling for investment purposes; and
• A mum or dad co-owning a property with their child to get their child into the property market.
Whilst this can be a great way to get into the property market, there are a few things you should consider carefully before buying, such as:
• What proportion are you each financing;
• What proportion will you each own, and in what capacity (i.e. joint tenants or tenants in common);
• How will you value non-financial contributions, such as house improvements/renovations;
• Who is responsible for maintenance;
• What happens if things go wrong (i.e. how can you ‘get out’ or enforce obligations of the other person);
• How will the property be used/who will occupy;
• Can debt be secured against the property (i.e. by way of personal guarantee/mortgage); and
• What happens if one person wants to sell/defaults/dies.
In order to avoid the above potential issues and save yourself a lot of expensive, legal headaches, a ‘Co-Ownership Agreement’ can be entered into, which enables co-owners to establish their rights and obligations pertaining to the property from the very beginning.
In particular, a Co-Ownership Agreement will set out:
• The management and contribution of outgoings such as rates, taxes and insurance;
• How ongoing repairs and maintenance are to be dealt with;
• How a co-owner may exit the co-ownership arrangement and/or sell their interest in the property;
• The determination of the sale price of the property and/or share in the property; and
• Dispute resolution in the case of a disagreement as between co-owners.
Whilst co-ownership can be a great way to break into the property market or expand your property portfolio, it is highly important to make sure you have a solid Co-Ownership Agreement in place to manage any future circumstances that you encounter.
Just like people’s minds, the property market is always changing, which is why we recommend to our clients that they enter into a Co-Ownership Agreement before taking the plunge.
If you are considering co-owning a property with another person and would like further information as to how we can assist you, please feel welcome to contact a member of the TGB Commercial team today on (08) 8212 1077.