January 16, 2014
A property partnership can offer potential property owners the opportunity to buy sooner. That said, making a joint purchase is not without risk.
While renters who are facing rising rental payments may be eager to buy a home, a careful evaluation of the benefits and risks associated with entering into a property partnership should be conducted prior to any paperwork being signed.
What Is a Property Partnership?
A property partnership means that two people purchase a property together. If you've had credit problems in the past, you may be considering a property partnership to buy a home. These joint purchases are usually done with close relatives or friends.
It's common for one partner to live elsewhere when a property is bought. This partner usually uses their strong financial history to assist a friend or relative to obtain finance and secure the property.
Property partners may also be purchasing a property for investment purposes. In this case, two or more partners will pool their resources to purchase an investment property. The share of the debt and profits related to the property is defined before the purchase is made to ensure that each partner understands the rights and responsibilities associated with the purchase.
The Benefits of a Property Partnership
The benefits of a property partnership relate to the ability of a buyer to secure mortgage financing. Each partner can contribute to the deposit on a property purchase, and lenders are more likely to provide financing for borrowers who can demonstrate that they've taken the time to carefully save a substantial deposit.
When banks lend money, they take into consideration the income of all the individuals listed on the application. This means that a property partnership could more than double the available financing for a person who is looking for a home by themselves.
You may be considering helping out a family member or friend who wants to purchase a property. The benefit to you in this case is the potential for the property to gain value over time.
The Risks of a Property Partnership
Financial dilemmas are often the source of headaches for friends and family members who decide to go in on a purchase together. Property partnerships could leave one partner struggling financially if the other partner fails to pay a fair share of the mortgage.
These partnerships can also go awry if the partners do not have similar goals in relation to the property. Discussions about how the property will be used, the future sale of the property and upkeep should take place and be set in clear and binding terms before purchases are finalised.
Our qualified mortgage broker can assist you every step of the way during the difficult or new stages of property investment.