Sep 24 2021

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Tags: property co-ownership  property investing  joint mortgages 

Pros And Cons of Property Co-Ownership
Co-Ownership of property has become an attractive way to enter the property market.

With property prices and interest rates continuing to climb, it isn't surprising that many first-time property buyers find difficulty entering the property market. This leaves many eager property investors looking for alternative ways to enter the property market, while many potential 'would be' first-time home owners continue to rent or share rent with a roommate.

Co-ownership of property is not a new idea. In fact, it is quite common with married couples, spouses or partners. However, more recently in world cities like New York, Berlin and London, there has been a substantial increase in the number of properties purchased between friends, siblings or family members, because it makes it more affordable and feasible to do so.

Today, there are a number of lenders that offer home loan deals or joint mortgages specifically for co-owners. As with any large investment, co-ownership isn't without its drawbacks. A great deal of thought needs to go into an exit strategy for the worst case scenario.

Investing in property with friends or family members needs to be based on a relationship of mutual trust and honesty. It also requires careful consideration. Investors may want to also consider taking a life insurance policy to cover themselves. It is important to understand that with co-ownership, both investors will be held liable for the bond repayments at all times that the mortgage is in force.


Advantages of Property Co-Ownership

1. Property Affordability:

Many first-time investors may not qualify for a mortgage loan by themselves. With co-ownership, acquiring a home mortgage becomes much easier, as lenders would consider your total, combined incomes, living expenses, debts and credit scores.

2. Shared Monthly Expenses:

It is a great comfort to first-time home buyers, knowing that they are not alone in the investment. Peace of mind that the monthly bond repayments and household expenses are shared with someone else can really lift the burden.

3. Shared Investment:

Since both investors are eager to get into the property market, it often makes sense to co-own a property, especially if it's your first real estate investment. Even if you decide to sell the property later on, your investment would have substantially increased, to serve as a deposit on your next investment.


Disadvantages of Co-Ownership Investing:

1. Fallout Between the Investors:

In life, fall outs and disagreements happen, especially when living together and if it happens, you need to have a strategy in place to handle it. Remember, either investor cannot just walk away or back out. Since both investors names are on the mortgage documents, you are both liable for the mortgage payments.

2. One Investor Decides to Sell:

it is important to plan an exit strategy before you enter the co-ownership purchase agreement. For whatever reason, the investor wanting to sell should first offer to sell their share of the investment to the other investor partner. In other words, it should be stipulated in the agreement that the investor partner always gets the first offer and the right of first refusal.

3. Risking Your Credit Score:

If any investor defaults in the mortgage payments, the lender is at liberty to report both investors to the credit agencies for non-payment and in the worst case, you could face possible foreclosure. Therefore both investors credit scores may be negatively affected going forward.

Can Dalena Properties help you enter the property market?

Conclusion:

Co-ownership with a friend or family member can be a great and affordable way to enter the property market and own your own home together. All expenses of the investment are shared, including the deposit, transaction costs, mortgage re-payments and utility bills, making it a very attractive venture. However it is also important to carefully consider the risks involved.

Having an agreed-upon exit strategy in place will help if one of you decides to sell or exit the agreement. Drawing up a legal agreement on how re-payments and expenses will be paid in the event that one of you is unable to make the mortgage re-payments is also of equal importance.

Related Article: Lease with an Option to Buy

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