A guide to property co-ownership

Before you enter into any arrangement it is critical you talk to your solicitor / conveyancer / accountant as everyone’s situation is different. When working out the legalities, think about the worst case scenario and plan to address that…better to be prepared than not.

Choose your partners carefully

Buying a property with a friend or family member is a massive decision – make sure you choose someone you trust, who shares your views and passions about property. Protecting your friendship and relationships should be paramount.

Finances discussed in DETAIL

Make sure you clearly understand your family or friend’s financial situation; can they cover their share of the home loan, are there any potential cash flow problems that might impact on your meeting the joint home loan repayments. All financial decisions must be discussed and documented.

Check you have aligned property goals

Ensure your property purchase goals aligned. Make a list of the must have’s and nice to have’s. List down the suburbs that you agree on, neighbourhood features, and property specifications such as an apartment, house, block size, structural requirements, whether it is an investment or whether you are going to live in it together etc

Discuss how you will exit from the co-ownership partnership

Having an exit strategy is important. Make sure you consider what will happen if one of you dies or becomes seriously ill or disabled (not a nice thing to consider, but important), or if one of you gets a cut in pay or a losses their job, goes bankrupt, the relationship changes, the property is sold at a loss or one owner wants to sell before the other. Having clarity from the beginning can help you be prepared for the worst.

Determine the structure of the property ownership

There are 2 main ways to structure co-ownership purchases – Joint Tenants or Tenants in Common.

Tenants in Common refers to ownership over a property where the owners don’t automatically have a right to survivorship (for example friends or siblings). There can be a number of owners and the shares in the property don’t need to be equal. For example 2 people can buy a property for $400,000 and one of the buyers may put in $300,000 therefore owning a share of three quarters. Or the 2 people may decide to go 50/50 and own equal number of share.

Joint Tenants refers to property ownership in which each party on the title holds an individual interest in the property. It comes with the right of survivorship meaning that when one of the joint tenants die, the interest of the deceased passes to the surviving joint tenant and is not considered part of the estate of the deceased.

Before you decide on the best structure for you talk to your conveyancer or solicitor about your individual situation and objectives.

Co-ownership agreement drawn up by your solicitor / conveyance

Avoid arguments by agreeing things in advance and getting it written up by a solicitor. A co-ownership agreement can help protect you and your friendship and should cover every possible issue, rule and solution. Think worst case scenarios and determine how to resolve the issues. For example you may agree that if one wishes to sell, the other co-owner has first right of refusal to buy their share of the property. Forward planning can help prevent dramas later on.

Find the right home loan

Talk to your home loan provider about the right loan for you. There are options to have joint home loans and ones that are specifically designed for co-owners. Make sure you get independent advice on what will work best for your personal circumstances

Get independent legal advice

It is essential that you get independent legal advice from your friend or family member, to ensure you lead with your head not your heart.

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Document everything

Keeping a record of every discussion, all payments, expenses and an inventory of individually owned items and shared items.

Research the market

Rushing in and buying the first property you see without doing any research into the national and local market, the neighborhood and even the street is a mistake. Knowing how much similar properties are selling for in the area is important so you don’t pay too much. Your local LJ Hooker agent have local market reports that can help you understand the market, plus attending multiple open for inspections and auctions will all help ensure you become a bit of a property expert. Use our handy inspection checklist and keep notes on why certain areas offer higher prices than others…don’t rush into any purchase you might regret.

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