What is co-ownership?
Co-ownership is when two or more people share the ownership of a property. While not necessarily new, especially for couples, this strategy is becoming increasingly popular among friends, family members or other acquaintances in order to get onto the property ladder sooner.
There are many undeniable benefits of co-ownership but there are also a few aspects that must be carefully considered before committing to such a large investment with another person.
Advantages of co-ownership
Some obvious benefits of co-ownership are that you can pool your money for a deposit faster, increase your borrowing power and potentially pay off a loan faster. It splits the often large upfront costs of stamp duty, conveyancing fees and building inspection reports when buying a property, as well as ongoing expenses such as repairs and rates, hence making property ownership more affordable.
It’s also incredibly beneficial in helping young Australians get on the property ladder when prices are at an all-time high in some cities, and buying an apartment on your own can seem near impossible.
Things to consider
Before jumping into co-ownership with your best friend, cousin, sibling or whoever, there are a few things you must consider to determine if this is the right arrangement for you, and to ensure there are no unpleasant surprises down the track.
- Ownership structure – Is it a 50/50 ownership structure, an even split among three parties or something less balanced? If it is a 60/40 ownership split for example, does that give the person with the greater portion more power over certain decisions?
- Joint decision making – Are you on the same page in terms of what type of property you’d like to buy and in which suburb? If not, how will you come to a compromise to make a decision on a property each party is happy to invest in? Also consider how you’ll make decisions about mortgage repayments and required renovations and repairs, for instance.
- The contingencies – While it’s probably something you don’t want to think about, or think might never happen, what will it mean for the property if you have a falling out with your co-buyer or one of you dies? For these reasons it’s important to have an up to date will as well as a co-ownership agreement drawn up by a solicitor, which lays out the rights and responsibilities of each party and how they’ll deal with any possible issues that arise relating to the property. For example, what will happen if one of you wants to sell the property, or perhaps sell their share of the property?
- Money considerations – Sorting out money and finances with another person isn’t always fun, especially when it comes to such a big and serious investment. Consider whether you’ll have a joint mortgage, whereby co-owners are jointly and severally liable for each other’s debts, or whether the mortgage is only under one person’s name, and the other will pay them their contribution directly as per an agreement. Be wary with the latter option and ensure it is only done with someone trustworthy (but the same goes for co-buying a property in general, really) – you don’t want them leaving you high and dry with a mortgage to pay on your own. While conversations about money and debt are not always comfortable it needs to happen before you sign on the dotted line. Be sure to discuss all possible issues, like what happens if one of you loses your job: can the other afford to cover their expenses and debt? Once again this is something that should be set out in a co-ownership agreement. Also consider the payment of day to day expenses, such as taxes and repairs and how you will cover these costs as they come in.
- Investment specific considerations – If the property will be an investment, consider who will liaise with the property manager and how the tax implications – such as Capital Gains Tax – will affect each party.
- First home owners grant – Co-buyers are eligible for perks such as the first home owners grant in certain states, so long as they comply with the requirements. Co-buyers should consider whether it is better to buy the property jointly or just under one name, so the other can still remain eligible for the first home owner grant to use at another time.
As you can see, there are quite a few considerations when it comes to co-ownership, but you also shouldn’t let them deter you from your home ownership goals, if this is the strategy that will get you there. It’s always advised you get a qualified professional to help you navigate your co-purchase in order to make the process smooth and clearly defined for all parties.