New research conducted by the International Monetary Fund (IMF) has confirmed the Australian dream of owning your own home is declining with figures showing house prices are becoming out of reach for many household incomes.
The research shows Australia is just behind Belgium and Canada in terms of housing affordability in comparison to taxable income which poses the question – how can Australians get ahead when it comes to owning their own home?
One answer is co-ownership. This refers to the situation where two or more people share the ownership of a property; it could be with a friend, family member or your business partner.
By pooling your money with others for a deposit, you can fast-track your way into the property market, and it also enables you to split all the costs of owning and maintaining a property.
Owning your own property in half the time you thought you could, sounds foolproof right?
Many people go into an investment with someone other than their husband, wife or life partner unaware of the pitfalls that can arise when circumstances change.
If you’re thinking about investing in property in a co-ownership structure, make sure you consider the following:
The legal side
Investing in property with your husband, wife or life partner automatically places you under numerous laws that will protect you in a change of circumstances. On the other hand, investing with anyone other than partner leaves a whole lot of room for disaster if things go pear shaped due to the lack of laws binding your agreement.
Every property investment faces a hiccup or two along the way and if tensions rise with your co-owner, you can’t just assume you’ll be able to talk through them rationally.
To help you and your co-owner navigate through any disagreements that may arise throughout your investment, be sure to draft and sign a formal Co-ownership Agreement prior to buying, which outlines every potential issue or scenario.
The Agreement should include each owner’s rights, obligations and contributions and should provide a formula for one of more of the co-owners to exit the investment, cash out their initial contributions and share in the profit.
What’s in a name?
Signing the deed is one of the first decisions you’ll have to make as co-owners. If you’re not married, you have two main ownership options.
Option 1: Tenants in Common
- Each person owns a distinct share of the same property (E.g. 50/50 or 75/25)
- When one tenant in common dies, shares go to his or her beneficiaries, not to the other owner(s)
- Each owner can sell or give away his or her interest in the property.
Option 2: Joint Tenants with Right of Survivorship
- Each person typically has equal interest in the property
- When one owner dies, their interest automatically passes to the surviving owner(s)
- The deceased owner’s shares simply disappear and can’t be inherited by beneficiaries.
With co-ownership, it’s crucial to remember that you’re not legally responsible for the debt unless your name in on the mortgage. Don’t mistake someone’s name on the deed for being legally bound, as it only indicates ownership and not financial responsibility for the property you have purchased together.
Ensure you’re going into this investment with someone who has a good credit rating and a steady income for the foreseeable future. This is important because if the loan document has been signed by both co-owners, each borrower is jointly and severally liable for each others’ debts. This means if your co-owner fails to meet their loan repayments, the bank will hold you liable for that debt.
You should be investing with like-minded people with similar goals. Make sure you feel confident that your owner-in-mind is financially secure enough to make their repayments and are committed to making the investment work.
Please be advised that this information should only be used as a starting point and should not be used as a substitute for legal advice.