The Increase in Co-Buying as a Response to Rising Property Prices
Property prices continue to climb, with high demand in certain areas driving exponential price hikes. Co-buying has emerged as an effective strategy for prospective homebuyers or those looking to expand their property portfolio. Just Property CEO, Paul Stevens, weighs in on the advantages of co-buying.
Property ownership is frequently seen as one of the best avenues for wealth creation according to Just Property CEO, Paul Stevens. He says, “In today’s market, where affordability can be a significant barrier, co-buying – whether through a partnership, syndicate or joint ownership – offers a way for individuals to invest in real estate without bearing the full financial burden alone.”
In the past, people may have seen co-buying or joint ownership as a route restricted primarily to acquiring property across sectors such as the commercial, retail, industrial and rural sectors. More recently, co-buying has gained popularity for purchasing and sharing holiday homes. Friends or family members co-own these properties, enjoying the benefits of ownership while sharing usage based on pre-agreed terms.
But now, as we’re entering a period of rising housing prices, co-buying a property may emerge as an appealing option to people who want to enter the property market but are limited due to financial constraints. Whether for a first time property, or for those looking to diversify their portfolios, co-buying provides investors with opportunities to mitigate risks and share the rewards and responsibilities of property ownership.
“Property partnerships can provide investors with the vehicle to building a portfolio that would be individually unattainable,” says Stevens.
The key benefits of co-owning property
- Shared financial burden
Joint investments allow buyers to pool their resources. This way, people are able to enter the property market earlier as they are sharing costs such as the deposit, bond repayment, legal fees and maintenance costs.
- Improved affordability
With a larger pool of disposable income, buyers can afford to buy a property that may give better returns in the future due to its size or location. This is particularly beneficial in high-demand urban areas.
- Lower individual bond repayments
Co-buyers will split monthly bond repayments which reduces the individual financial strain. It may mean that the bond period can be reduced, or additional payments made to reduce the total interest paid over time. It might also allow for improvements to the property that will further increase its value in future.
- Better financing options
With a joint income and shared risk, buyers may qualify for a larger bond or be able to negotiate better finance terms which can have a significant advantage in a competitive market.
- Shared maintenance and management responsibilities
Other costs such as municipal rates, property maintenance and dealing with any property related matters are also usually shared by co-buyers, although this arrangement can be tailored to suit each person’s preference.
Primary Considerations for Successful Co-Buying
Success in co-buying hinges on trust, open communication, alignment of investment goals, and a clear understanding of the responsibilities of all parties. While co-buying can be highly beneficial, it comes with its complexities. As Stevens notes, “The more parties involved, the more challenging decision-making can become. While the risks are more evenly distributed, co-buyers must be prepared for scenarios like one party defaulting on payments or wishing to exit the arrangement. It’s crucial that the co-ownership agreement details recourse for such situations, ensuring that all parties are protected and that there is a clear plan for handling these risks.”
Potential co-buyers should consider different co-ownership structures such as syndicates or family trusts, which can provide tax benefits or additional legal protections. Choosing the right structure is crucial, and Stevens recommends discussing your options with knowledgeable property and legal professionals to ensure the best fit for your investment goals.
When co-buying for investment purposes, whether the focus is on immediate capital growth, rental income or long-term prospects, a unified investment strategy is crucial. When purchasing for shared personal use, a pre-agreed schedule for property use can help manage expectations and avoid conflicts. Ensuring that no party is unfairly advantaged or disadvantaged, particularly during peak seasons helps maintain amicable joint property ownership.
When considering your options, it’s important to keep abreast of market trends. Also make sure that you have a buffer built in to protect you from any interest rate increases or unforeseen costs.
Exploring Current Opportunities
New developments, particularly those offering off-plan purchases, provide financial benefits such as savings on transfer costs according to Stevens. Distressed sales, such as auctions and repossessions and auctions, may present opportunities to acquire properties at lower prices.
Rather than focusing solely on the purchase price, investors should also consider properties with potential for future value creation. Stevens highlights the advantage of purchasing properties that can be subdivided, extended or even rezoned, which can significantly boost returns down the line. “This strategic approach can open up new opportunities in both the residential and commercial markets.”
Legal and Financial Safeguards
As co-owners share the rights and responsibilities attached to property ownership, the importance of a well-documented agreement among parties cannot be overstated. “Co-buying requires clear legal documentation that outlines the responsibilities and rights of each party. This should include agreements on financing, property use, recourse in case of a default, and exit strategies in the event of a voluntary sale, death, or insolvency. Major decisions, such as selling the property, making alterations or renting it out, will require the consent of all co-owners to ensure that no one is unfairly affected by unilateral decisions - discuss how this will be handled upfront. It is essential that both parties seek financial and legal advice before any purchase is made,” says Stevens.
How will costs and benefits from the property, such as maintenance fees or rental income, be shared? Will it be in proportion to each owner’s stake? For instance, a co-owner with a 60% share would be responsible for 60% of costs and entitled to 60% of the income. Will occupation of the property also be pro rata? These considerations need to be thrashed out well before pens are put to papers, says Stevens.
”Co-ownership can take various legal forms, such as joint tenancy or tenancy in common, each offering distinct rights and obligations. For example, in joint tenancy, co-owners share equal ownership, with rights of survivorship, while tenancy in common allows unequal shares and distribution via a will. Undivided rights in co-ownership arrangements mean that each co-owner has full rights over the entire property. This means that all owners are responsible for shared upkeep, such as repairs or taxes, even if they do not occupy the property full-time.
“Whether you’re investing through a family trust, setting up a company, or joining an existing syndicate, total transparency is essential. Avoid any arrangements that are unclear,” Stevens advises. He emphasises the importance of seeking sound legal advice, independent financial guidance and the assistance of a knowledgeable property professional before entering into any agreement.