Co-ownership: advantages and disadvantages

With homeownership becoming increasingly expensive, it is becoming more common to co-own a property as a means of entering the real estate market. Before entering into this kind of ownership, it is important to be aware of the pros and cons of this sort of agreement.

"Co-ownership is when two or more people own a property together. You are free to apply for a bond with whomever you like, including a partner (even if you're not married), an acquaintance, or one or more family members. Lenders will take into account your total combined income, living expenses, obligations, and credit ratings, which can help you afford more than if you applied on your own," explains Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.

"Naturally, the more parties involved, the lower the sale's profit each owner will receive and the more administrative work there will be to transfer the title deed and to make decisions on what to do with the property," he adds.

When choosing who to enter a co-ownership agreement with, it's best to carefully consider your investment partners and to have a good understanding of their goals and objectives before agreeing to buy a home together. By agreeing to a joint bond arrangement, Goslett explains that you and your investment partner(s) accept joint responsibility for the repayments, taxes, and other costs related to the acquisition or disposal of the property. "If one of the owners does not provide their portion of the repayment, the other owner will have to foot the bill for them."

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All co-owners also have the right to agree to any changes made to the property. "One co-owner cannot simply make changes without consulting the other parties first," Goslett cautions. Similarly, one party cannot simply sell the home without the other co-owners' consent.

"While it is possible for one party to leave the ownership agreement early, planning a fair departure strategy before signing the co-ownership agreement is crucial. For whatever reason, the investor who wants to sell should first make an offer to the other investing partners to buy them out. Put in legal terms, it is advisable that the agreement provides for the investing partners to have the right of first offer and refusal," says Goslett.

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Those who are co-purchasing a home as a quick investment strategy are reminded that, unless you are planning to flip the property, most property purchases should be treated as a long-term investment strategy. This means that you should ensure that whomever you choose to purchase the property with is prepared to be in it for the long term.  

"To ensure the best possible return on investment, it is advisable to keep the home for at least five to ten years before selling. If you do not plan on living in the home, contact a real estate agent to help you rent the property out as a passive income stream while the home grows in value over time," Goslett concludes.

READ: Property co-ownership must-knows: Buying to invest, flip or live 

David Knott of Private Client Trust, a division of Private Client Holdings, in a previously published article, provided some advice on joint property ownership, property inheritance and property held in a trust:

1. Buying a property that is held in a trust

"At one stage it was thought that instead of buying a property held in a trust outright and being obliged to pay transfer duty, it was advantageous to purchase the entire trust and thus avoid transfer duty. This kind of transaction goes against trust law, but various transactions did go through on this basis due to a lack of understanding of trust law by various Deeds Office officials and unscrupulous attorneys," says Knott.

"The law was subsequently changed, and if a property is purchased from a trust, or if a trust is sold, there is the normal rate of transfer duty payable."

2. Selling a jointly owned property and selling property held in a trust

Knott advises that there is no difference to the sales process of a jointly owned property other than the fact that all co-owners need to agree to the sale and the sale price, and all owners need to sign the deed of sale or grant a power of attorney to enable the deed to be signed on their behalf.

"If a property is held by a trust, the trust deed would dictate how the property should be sold, a proper trustee meeting would need to agree to the sale, and once again all trustees would either need to sign the deed of sale or authorise how the deed is signed."

3. Co-inheriting property - how it is held and registered, and what happens when you sell?

According to Knott, co-inheriting a property would be similar to buying a property with others.

"All co-inheritors and co-purchasers would be named on the title deed and they would all have a say as to how the property is to be managed, what improvements need to happen, and would be jointly responsible for municipal charges, insurance, maintenance and so on," says Knott.

"When it comes to selling the property, all joint owners would have to agree to the sale price and be joined in the sale."

Finally

"Obviously, co-ownership comes with its disadvantages when the co-owners have differing views and financial backgrounds and this is a source of potential conflict. In extremis, the court would have to intervene, and nobody should wish to have the courts decide for them. If the co-owners see reason and get along, no problem," says Knott.