We are all aware of the current unaffordability in the Australian property market, particularly in the eastern states.
It has been reported by the Housing Industry Association that it now takes 1.2 average incomes to service a typical home loan.
A strategy that we have seen occurring more frequently is for a person to acquire a property to live or to invest in, with another person.
An obvious advantage of this co-ownership is that the initial outlay and ongoing costs are shared, thereby reducing the financial stress on each person.
However, there can be significant disadvantages where the persons involved have different financial circumstances and/or intentions. For example, when should the property be sold, or rented out, or renovated, or developed. Who pays the bills, how much should be borrowed and how much deposit (equity) should be contributed. What happens if the contributions are not equal?
We suggest the parties enter into a legal contract – a co ownership agreement – prepared by a solicitor, to set out their rights and obligations relating to the property and to minimise any potential legal actions in the event of a disagreement.
Care and consideration also needs to be given in relation to the type of tenancy of the property. Should it be owned as joint tenants or tenants in common?
|Joint tenants:||The interest of a deceased joint tenant passes automatically to the surviving joint tenant(s). Usually used for spouses.|
|Tenants in common:||The interest of a deceased tenant in common passes according to the terms of their will. Usually used for friends.|
We have seen many unintended consequences arise from rushing into joint investments, including investing in joint tenants names where the more suitable tenancy would have been tenants in common.
Please consider discussing your intentions with us first before it is too late or too expensive to correct.
Author – Zane Grigg
*Correct as of 30 May 2022
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.