Co-owning a property - Is it for you?

Purchasing a property can be a lengthy process. More than often, individual financial setbacks are the main cause of deals not being a success. Most homebuyers who do not meet the requirements opt for co-purchasing a property with a parent, partner, or friend. 

Co-owning a property is also a good way for many individuals to start their investment portfolios. Be it for long term rental properties, or to attain a quick sale. The latest trend of house flipping is also attracting South Africans to short term co-ownerships. 

But what happens when there is a conflict between the parties, or if a co-owner dies or goes bankrupt? What happens to the property? Before entering into an agreement with a co-owner, it would be wise to analyse all aspects of the deal to ensure that each partner safeguards their interests. These issues can be addressed by drafting a co-ownership agreement.

These are some of the important points to include in the co-ownership agreement:

• Purpose of the property

As co-owners, each member needs to be on the same page when it comes to the intentions of the purchase. For example, will the property serve as a rental investment, such as holiday accommodation, or will one of the co-owners be living in the property? 

• Payments

It is vital to have each co-owners' initial deposit recorded in the co-ownership agreement. The percentage or shares of the property which each owner will hold must also be stated. Discussing access and the right to withdraw funds from the bond account in early stages will also prevent any issues in the future. 

Co-owners are equally responsible for the bond repayments irrespective of how they have split their co-ownership and responsibilities. This allows the bank to recover the full amount from either debtor only or from all of the co-owners according to the shares they hold, regardless if one of them is paying his/her portion or not. 

• Re-sale agreement

The re-sale agreement should clearly state how the profits/losses will be split should the property be sold. For instance, if one person owns a share of 30% of the property, will he only earn 30% of the proceeds of a sale?

Bear in mind that if the property being sold makes a profit of more than R2 million, a percentage of the profit will go towards capital gains tax.

• Disputes

Any partnership is bound to have disputes and disagreements. There should be a written set of guidelines determining how to deal with such issues. Co-owners should further stipulate how the partnership will be terminated and steps to follow in the event that one member wishes to sell. Death of a co-owner and divorce are also important factors that need to be taken into consideration. 

Advantages of co-ownership

• The home loan application is more likely to be approved, provided that all parties have a good credit score.
• It becomes more affordable to purchase a luxury property by combining all partners' salaries. 
• Bond payments and legal fees are split according to the ownership agreement.

Disadvantages of co-ownership

• If one partner defaults on a payment, the credit records of all partners are affected.
• If one partner wants to sell their half and remove themselves from the bond, a new bond will have to be applied for and another credit assessment shall be processed.

Co-ownership favours those who lack the financial means of making their property dreams a reality. It is indeed a smart method to make a profitable investment as well as a means to secure the perfect home. Contact Knight Frank today and we will assist you and your partners seal the deal on a lucrative opportunity.