Property co-ownership
For first-time buyers, property co-ownership may be the easiest and most affordable way to enter the property market. For others, it can be an accessible way to extend an existing property portfolio.
As with any business transaction, it is vital to carefully consider the advantages and potential drawbacks of the arrangement, as well as come to a transparent agreement with the co-owner(s).
The good
You’re only responsible for an agreed-upon percentage of the monthly bond repayments. Similarly, the cost of maintaining the property is also shared. Decide on the split, both in terms of ownership and financial responsibility, as soon as a suitable purchase has been decided on.
Do note though that while the buyers decide on their respective share of the property, and which will be recorded as such in the title deeds and registered at the deeds office, the institution that grants the loan will expect that all parties sign to be “jointly and severally” liable for the repayment of the loan. This means that the mortgagee is entitled to recover the whole amount from any one of the co-owners if there is a default on the regular payments.
The bad
Disputes and pitfalls usually arise when one of the owners default on their monthly bond repayments, or cannot afford to contribute their share to the routine maintenance, or one of the partners want to sell their share in the property.
It is essential to seek legal counsel around these matters, but even more important to have a co-ownership agreement drawn up when entering into such a transaction.
While a lawyer needs to draw up the contract, a trusted property advisor can guide and advise you on how to structure the agreement to protect and promote the interest of all parties involved.
And the letter of the law
While it’s up to the owners to stipulate the contents and scope of the agreement, it’s rather essential that the contract makes provision for eventualities. Who will occupy the property? What happens in the case of death of one of the partners? Should the property be sold, how will the potential profits or losses be divided?
It is best to come to an agreement on these considerations before buying the property as a roadmap for the way forward, rather than trying to navigate murky waters once you’ve left the safety of the shore.
Property investments should not be taken lightly.
The backlash of an investment gone wrong can be very expensive and best avoided. But, approached with open and reasonable expectations, it can be a very worthy and rewarding investment.
Swain is chief executive officer of Leapfrog Property Group