Getting a foot on the property ladder can be easier if you combine your resources with a family member, friend or stranger, but as Andrew Winter explains, having a water-tight agreement is essential before making any big financial decisions.
Co-ownership can work, provided you expect problems. For an investment, where neither of you are residents, is probably a slightly easier option to navigate as it can get tricky if a relationship breaks down and you're both living together in the property.
I would suggest the most important part of co-ownership is having a pre-purchase agreement. You could almost write it yourselves, but it’s better to get a lawyer to do it, where it's witnessed so if there's a problem, everything is in black and white.
For example, I co-own a boat with one other person. We have an agreement that covers things like what will happen if after six, 12 or 18 months one of us feels like getting out and how to calculate the finances involved, as well as considering the options of the person remaining in the partnership.
In your pre-purchase agreement, it's essential to have a solid get out clause and be clear on how the figures are calculated.
If one party wants to sell, how should you determine the value of the property? Do you get one professional valuation and stick by it? Or do you get three real estate agents and go with an average price? Based on that, determine in your agreement how will you split the legal costs if you decide to both sell or if one person wants to stay and buy the other out.
Be open and honest in your negotiation, as well as thorough. If you can’t come to a consensus on the terms of the agreement, it's probably a sign you shouldn’t be investing together.
Co-owning with a stranger
A lot of companies offer the opportunity to co-own a share in a property with a group of like-minded strangers. These companies pre-purchase properties - and that’s all well and good - but keep in mind that they have to make money as well, so you might be better off avoiding this kind of investment.
Most people only ever make money on a property when they own it outright or there’s perhaps one other owner. If you own a share of a property with say 50 or 60 others, the capital gain is divided by the number of parties owning shares. Sometimes this means there isn’t that much capital gain at all.
Of course, if the property goes up in value by 50 per cent in three years there is! But even if it does, and then that growth is divided by 60 people, you could have probably made more money owning a property in a regional area with your mum and holding on to it for five years.
When you're living in the property
You definitely want a lawyer to write up any agreements you have if one, or both of you, are living in the property you co-own. My advice would be to engage a professional to draft up a very clear agreement that’s executed and witnessed so that if something does go wrong you know exactly what to do.
There are all sorts of issues that can arise, and the partnership becomes like a marriage. If you fall out, and one party wants to move, you’re both stuck as one person will reap all the benefits.
Love It Or List It Australia continues Wednesdays, 8.30pm, or watch it your way on Foxtel GO.