If you are unable to purchase real estate on your own, co-owning an investment property with friends or family can result in favourable returns. Yet, as with any investment, it is important to conduct thorough research to ensure that it is a wise decision.
Regional Director and CEO of RE/MAX Southern Africa, Adrian Goslett, says that the benefits of co-owning an investment property are clear: less individual financial outlay and larger financial backing in case something goes wrong. “But there are also some serious downsides to this situation that buyers need to consider before going ahead with the purchase” he cautions.
The main downside is the shared responsibility of keeping up with the repayments. “You want to ensure that you will not be left covering the costs if your partner(s) suddenly find themselves unable to contribute financially, or vice versa. To avoid issues around this, be sure to set up as detailed of an agreement as possible around the financial responsibilities of each party involved in the purchase,” he recommends.
Similarly, all parties ought to be informed of the ongoing responsibilities they each hold towards managing and maintaining the home. “When investing with others, the workload of purchasing and managing the home can and should be divided up fairly. At the very beginning, agree to who will be responsible for managing all the paperwork during the purchasing process, who will be liaising with property managers, paying the municipal rates and taxes, dealing with repairs and other similar tasks. Doing so will avoid arguments later down the line,” Goslett says.
Goslett also tells investors to ensure that everything is properly recorded for tax purposes. “It is important to have a clear understanding of how tax will be calculated on the rental income that is split between each investor. I would strongly recommend that investors seek professional advice on their legal and tax obligations when splitting ownership of a property.”
Lastly, Goslett says that it is important to be on the same page regarding what everyone had in mind for the property. “It is vital all investors are on the same page regarding what they each hope to achieve with the property. Investors should discuss among themselves whether they plan to sell in a few years or to hold on to the property for longer. They need to know if the goal was to have a long-term source of passive income or whether the goal was for one of the parties to eventually move into the home, for example. Understanding others’ expectations for the property should help to avoid future conflicts.”
After taking all the above into consideration, there is no reason why expanding your property portfolio with others should not be a fruitful undertaking. To provide an even greater chance of success, Goslett recommends engaging with an experienced property manager who can help take the stress of managing the investment on the various investors’ behalf.
“Enlisting the help of a real estate professional can serve multiple purposes. For one, it takes the responsibility of managing the home off the investors’ shoulders. Beyond this, the agent can also act as a neutral third party, which can prove helpful when conflicts arise between investors. As a final benefit, a real estate professional can help investors find a sound investment opportunity and match them with a reliable tenant. This will set them up for greater financial success in the long term,” he concludes.