Home News Do’s and don’ts of property joint ventures

Do’s and don’ts of property joint ventures

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Nila Sweeney

For some, the great Australian dream of owning your own home is slowly becoming out of reach. Property co-ownership may be just the solution you’ve been looking for…

Mina Mavrogeorgis, regional director Maroubra of intouch Finance, says splitting a house purchase – whether it’s to occupy or as an investment – has plenty of merits.

“With continuing economic uncertainty, stricter lending guidelines and property prices slowly but surely continuing their upward climb, property co-ownership has become increasingly popular over the last few years with friends, family and de-facto couples,” she explains.

“Property co-ownership makes owning a property more affordable as it enables potential buyers to pool their money together for a deposit. They also utilise their shared borrowing power to obtain a loan and effectively share their mortgage risk.”

In a joint venture (JV) arrangement, the cost of the property and all of the associated expenses are generally split between the co-owners, although the nuts and bolts can vary depending of circumstances. For instance, if one JV partner has a high income but no savings, they might agree to pay the ongoing monthly costs of maintaining the property, so long as their co-owner agrees to front up the deposit.

However you decide to split the arrangement, Mavrogeorgis points out several do’s and don’ts when embarking on a JV.

DO: Check your emotion at the door

“As this is essentially a business agreement, emotion should be kept out of the equation and a legally binding contract or co-ownership agreement between the parties, based on the tenants in common principle, should be drawn up by an experienced property lawyer,” she advises.

DON’T: Buy property with someone you don’t know

They don’t need to be your best friend, but they should be someone you know reasonably well. “Make sure you meet the other potential co-buyers several times before you buy with them,” Mavrogeorgis advises. “You need to find people with similar mindsets who have the same goals for the property, particularly when setting the timeframe for selling the property.”

DO: Get it in writing

The co-ownership agreement should outline what the co-borrowers need to do before exchanging contracts and ensures they know what their rights and obligations will be once a property is purchased. “It should be signed by all parties prior to purchasing a property,” she says. “Basically, this agreement ensures that the investment of all buyers is protected.”

DON’T: Forget the details

Before you buy, you need to discuss the details with your JV partner. For example, how will you determine fair market value if one person wants out? What will the process be for buying out another partner, if necessary?  And what is the process for agreeing to and reviewing an annual operating budget for expenses arising from the property?

DO: Plan for the future

Your written agreement should cover issues such as when and how to sell, what happens if someone defaults on their mortgage, issues relating to the land title and how parties can be bought out. “For instance, it should include a mediation clause that outlines how disagreements are resolved between parties, and it should indemnify each co-owner against any liability caused by a failure of a co-owner to fulfil their obligations under their mortgage,” Mavrogeorgis explains.

DON’T: Scrimp on legal costs

Each party in the JV, regardless of their status as either friend, partner, family or otherwise, should seek their own independent advice of a lawyer before entering into a co-ownership agreement.

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