Property co-ownership is becoming a popular way to get around expensive property prices. There are now several digital platforms for property co-ownership where you can find other people to divide the costs of buying a house. However, this can get a bit risky. Property investors have to know the risks of property co-ownership, especially when dealing with distant, potential co-owners.
Types of co-ownership
The two most common types of co-ownership are Joint Tenancy and Tenancy in Common. The biggest difference between the two are the rules concerning the death of a co-owner.
A Joint tenancy comes with the “right of survivorship” which means when one co-owner dies, his or her interest automatically passes to the surviving co-owner(s) and does not form part of the estate of the deceased.
With tenancy in common, there is no right of survivorship. If one of the co-owners dies, their interest forms part of the deceased’s estate and does not naturally pass on to any of the surviving co-owners of the property.
Some other forms of property co-ownership include Strata title and company title.
While there are pros and cons to each type of co-ownership, property co-ownership generally share the same risks.
The risks of co-ownership
While the financial benefit of property co-ownership is considerable, there are a number of risks that one should consider before entering into this type of agreement. Some of the risks are:
- A co-owner wants to sell but the other doesn’t want to – selling or buying properties involves expensive financial, legal, agency, and statutory costs so finding a committed co-owner is crucial for a successful co-ownership arrangement.
- Finding a buyer may be difficult – should you decide to sell your share, it may be difficult to find a buyer who’s willing to take over your ownership. Some may not like the idea of purchasing a share of a house and live with people they don’t know.
- It could affect your future buying power – lenders evaluate the entire loan as your responsibility and not just your portion.
- Financial responsibilities can cause tension between co-owners – responsibilities such as joint repayments especially if one owner defaults on the loan as well as not paying your share of ongoing costs could cause tension between owners.
- Relationships change – social situations changing between co-owners such as close relationships and friendships turning sour could lead to the downfall of the co-ownership arrangement.
Seek professional advice to minimise risk
Property co-ownership may be the answer for individuals and families that find it hard to afford properties in capital cities. They provide a vehicle for small investors to access high property investment. Furthermore, it allows them to invest in multiple properties to control risks. Nonetheless, it’s still best to seek professional advice to know the risks that come with property co-ownership and learn strategies on how to avoid them.
If you need assistance with maximising deductions for co-owners, contact a Chan & Naylor accountant near you, and we’ll be more than happy to help.
Aside from helping you with your tax deductions, have a look at our other accounting and advisory services that we do to help you achieve greater success.
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