Building a property investment portfolio is a dream for many seeking to achieve financial independence. However, getting your first one under your belt can be challenging finance wise, but you do have options.
They say two heads are better than one. Have you considered pooling your resources to buy an investment property with a friend, business colleague or family member? Or maybe you have, but you’ve held back because you feared entangling yourself in a loan with someone else and what that might mean to your credit rating and financial status if it all went wrong.
Well hold back no more, as there are lenders in the market today who allow two borrowers to buy the one investment property utilising separate loans.
And the good news is – each borrower is separately responsible for their own loan.
These types of loans offer borrowers who want to grow their investment portfolio the option to buddy up for success, by allowing them to split the cost of buying an investment property with someone else, while retaining individual control of their finances.
Consider the Benefits:
- Pooling money could allow you to expand your property portfolio faster.
- Allows you to borrow more funds than you could otherwise afford on your own.
- You might be able to buy the property you want, in the location you want, rather than having to settle for a cheaper option.
- Your credit rating is not affected by the actions of your co-owner.
- Each borrower can decide on how they want to manage their loan own repayments.
Naturally as standard practice each borrower needs to show they can service the loan they are taking out, but this type of loan is certainly a great option. For example, say one borrower has a sizeable deposit and the other lacks deposit but has good serviceability. In this situation buying with a buddy could be a win-win for both parties.
However, in saying this there are things to be considered.
You should always buy with a like-minded person, someone with similar goals to yourself. And you need to make sure you feel confident that the other partner is financially secure enough to make their loan repayments.
With co-ownership it is also imperative that each party seeks out independent financial advice and a co-ownership agreement is in place before buying a property.
If it all goes wrong things can quickly turn into a nightmare, so it is important to protect your position. I recommend you speak to a solicitor and have an agreement drawn up that is specific to your needs and situation.
The agreement doesn’t have to be complex, but it will require you to have rules and agreements worked out in advance – this is crucial. For example, co-owners may agree that if one wishes to sell, the other co-owners have first right of refusal to buy their share.
Things to be considered might include:
- The contribution of deposit and the cost of the investment property?
- Should a sinking fund be set up to cover repairs?
- How long will the property be held before selling it.
- A plan to pay for unforeseen maintenance costs.
- How various insurance issues will be managed?
- Taxation/depreciation and capital gains tax issues clarified.
- On the sale to another co-owner, how will the sale price be determined?
- Who determines the rent payable and the tenant?
- Will either of the co-owners live in the property and on what basis?
- How sale proceeds will be distributed and why a sale would take place?
- How will disputes between owners be resolved?
Reading through this list gives you some idea of the things that need to be addressed. No doubt you and your solicitor will come up with many more which is why it is important to draw up your co-ownership agreement prior to purchasing. This way you can avoid any disputes down the track.
In regards to the finance and choosing the right loan for your co-ownership investment property, banks and lenders are continually altering their products, interest rate offerings and there’s always great deals to be found.
There is no doubt that when it comes to investing in property, knowledge is power. Whether you are new to property investing or purchasing subsequent investment properties, avoiding the common mistakes made by others will ensure you build a successful property portfolio.
If you would like to discuss the right loan for co-ownership with a buddy or would like a revision of any of your existing investment loans just give our office a call on 1300 888 299 or send us an email.
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to whether this scheme is appropriate for you.