Not going it alone can come at a cost

Hi guys, I just want to hear your thoughts on this recent article I wrote.

Co-ownership may be a great option for investors or owner/occupiers struggling to get into the housing market, but it is full of traps.

Here are some points you should you be aware of before committing to this type of arrangement.

The duration of the co-ownership agreement

Is it a 10-year project? Or is it a rolling 12 month agreement, where every year you sit down and decide whether to hold the property or sell it?

The duration of the agreement will become important in instances where someone owns a property with others, under an agreement to hold it for 10 years due to a desire to capitalise on the long-term growth in the area, and then suddenly the individual dies.

The relatives may want their share of the property now and won't care about the deceased's agreement to hold the property for 10 years.

A well written and well-defined co-ownership agreement will put the matter to rest.

Managing the property

An agreement should be made about who will manage the investment.

If it's a residential property, it is possible that one of the co-owners who lives in the area can manage the investment, thus saving on property management costs.

But will the one managing the property be as good at selecting quality tenants and maximising the rentals as a professional real estate agent would be?

If the co-owners decide not to use a real estate agent, how will the owner who assumes management be compensated, if at all?

Philosophy on maintenance and repairs

If it’s a potential development site, the group should decide whether to spend a minimum amount on repairs until the property is eventually demolished and sold as a development, or whether to spend whatever amount is needed to make sure the property is in good condition therefore attracting better quality, higher paying tenants to maximise the yield.

Working out equal say

Do all owners have an equal say regardless of the contributions in the investment? In other words, does the vote equal to the amount of dollars invested?

Will voting constitute "majority rules" or a unanimous vote to sell the investment earlier than the 10-year time frame originally agreed upon?

It is best if the group formulates a business plan that is detailed in the co-ownership agreement, so that disputes and disagreements can be avoided.

It pays to look into these areas and get things right from the start. After all, the co-ownership agreement is there to protect you when things go wrong.

Start with the end in mind and you can’t go far wrong.

Kevin Turner | RealEstateTalk Host
Sellers Guide–appointing the best agent and how to make sure you get top dollar in any market.
[email protected] | Twitter: @Realestatetalk