New research from CommBank has revealed that a quarter of Aussies have considered buying into a property share.
When asked what was driving the property share trend, over two-thirds said affordability was the main reason. This was followed by buying a bigger/better property and spreading the financial risk if anything went wrong.
Property share makes sense in this hot property market. It usually involves:
- pooling your money with others to put a deposit down on a home
- combining your borrowing power to borrow the rest from a financial organisation
- paying off the mortgage on your home instead of paying rent (for owner occupiers), or earning a stream of rental income (for investors)
“Property Share is a little known feature among customers with growing challenges around housing affordability,” says Commonwealth Bank’s (CBA) Executive General Manager of Home Buying Dr Michael Baumann. “It may be appealing to customers who are looking for new ways to be able to afford a property given the current market conditions.”
Bank of Mum and Dad on board
Many parents are going down the property share route when helping their children buy a house, rather than simply lending them money or going guarantor. As a joint owner, the parent benefits from the capital growth of the property.
The CBA research also looked at what prevented potential property buyers from purchasing using property share. The vast majority of respondents said they harboured concerns about putting the relationship under pressure. In a property share with your parents, it could impact your relationship with siblings too.
Right from the start you need to get professional advice to cover off all the issues. Everyone involved needs to know their rights and responsibilities.
How to own a property share
How to own the property together is an interesting decision. There are two choices: ‘tenancy in common’ or ‘joint tenancy’.
A joint tenancy agreement means each owner is jointly and separately responsible for the entire property and the mortgage. If one party dies, the surviving tenant or tenants take the whole property. If one party doesn’t pay their share of the mortgage, the other is obligated to pay up instead.
Tenancy in common
Tenancy in common assigns each of the partners direct ownership of a nominated portion of the property. It means each party is responsible for their own mortgage and share of the property. It’s usually a more flexible form of ownership than joint tenancy. That’s because everyone’s rights and obligations are clearly set out in a legal agreement before going into this arrangement. You know exactly what you need to do to make it work.
Tenancy in common is worth considering. It means your parents have a distinguishable separate title to their part of the house. This means they won’t be at risk of being lumped with your mortgage should you get in to trouble. There is also a distinguishable part of the house which can form part of your parent’s estate to be distributed to beneficiaries as they wish.
Know how it ends
Another major point to work out is how one investor can cash in their portion of the house if the other investors can’t afford to buy it out, but want to stay in the house.
Get advice from a solicitor about drawing up a simple agreement. For example, it might say any investor can buy the other out at a price determined by the average of three independent valuations. Otherwise, the property is sold and the proceeds distributed according to the ownership proportion.
Your solicitor will be able to advise on a number of different options.