Property investment can at times be overwhelming, especially if you are struggling to gain a foothold in the real estate market. Co-purchasing an investment property is a method of entry that has recently been gaining traction as a means of wealth creation.

While it is common for spouses to co-purchase properties, it is much less common among singles. Yet, this is an increasing trend among first time property investors. Driving this trend is the difficulties that first time investors encounter when trying to put a deposit together. By co-purchasing, people are pooling together multiple sources of funds, boosting the initial deposit. Another driver of this trend is the fact that people are delaying marriage until later on in life, which leads them to consider property investment in partnership with family members, friends or acquaintances.

Although co-buyers have more options available to them, such as purchasing a property in a nicer suburb and dividing the deposit and mortgage costs and thus entering the property market much sooner than once thought, co- purchasing is fraught with potential issues. It is vital that investors prepare for an array of contingencies prior to purchase.

 

The Risks

1. Future home loan affordability

Sharing the responsibility of a loan with others may make it more difficult to obtain a loan for another property in the future. If a co-owner wants to buy another investment property, banks will assess the entire existing loan and not just their individual portion of that loan, as that borrower’s responsibility.

2. What if a co-owner wants to sell?

Issues can arise if one co-owner decides that they want to sell the investment property while the other parties do not. At the most extreme end of the spectrum, court action can be taken. If an amicable agreement cannot be established between owners, the court will look at whether the investment can be easily divisible as well as whether one party is more burdened financially than the other(s).

 

Communication is Key

The most important thing to remember when considering co-purchasing a property is that it is a business transaction. It is vital that co-purchasers obtain legal advice and assistance in preparing agreements to ensure everyone’s finances and relationships are protected. Legal documents should contain information pertaining to the following:

• What happens if an owner wants to sell, renovate, cash out or involve additional parties?
• How will mortgage, insurance and other household expenses be dealt with?
• What happens in instances of death, divorce or disputes?

Co-purchasing a property is one way that individuals can gain entry into property investment. It is important to remember that real estate involves a long-term commitment and although the chances of things going wrong may not be too high, when they do, they can be taxing in monetary terms and personal relationships.

 

Want to live the life you really want? The team at Infinite Wealth can provide the education, direction and on-going support you need to reach your financial goals. Get in touch with us today on 08 9438 6333 or click here to contact us.

 

The information provided is of a general nature and is not intended to be constituted as financial advice. We recommend that you seek independent advice from qualified professionals before employing any strategies outlined.