Are you ready to take the next step and purchase a property with your partner in 2021?
As Valentine’s Day approaches, many Aussies may get swept up in their love bubble and be planning their future, with the pandemic possibly accelerating a desire to buy a home together.
But before you decide on what could be one of the biggest commitments you’ll ever make with a significant other, it is important to have weighed up all the pros and cons.
RELATED: The suburbs where prices fell despite the boom
Should homeowners take money and run?
Bridgerton-style mansion found in surprise Aussie suburb
“There’s been a trend in unmarried couples buying homes together, highlighting how many couples are prioritising buying property before getting married or having children,” Lloyd Edge, Director of Aus Property Professionals says.
Have you considered taking the plunge and moving in with your partner? Picture: Supplied
Alongside commitment, joining forces will also open up more opportunities as it can be quite difficult and sometimes limiting buying a home on a single income.
“Although it’s an incredibly exciting time, it’s important to note that co-ownership can cause strife if a couple encounters a few circumstances, for example, if they have different money values, or they decide to break up, or one individual loses their job.”
Edge — who is a former music teacher who started a $12 million real estate empire — had success buying a property with his partner, and wants to pass on his advice.
“My wife and I actually bought a property in the Inner West of Sydney before we were engaged, when I was working as music teacher and she was a chartered accountant,” he said.
“We bought as ‘Joint Tenants’, but it’s also important to note that you don’t always have to contribute equal amounts, as I paid the deposit on the house and she bought most of the furniture, which worked out well.”
Director of Aus Property Professionals Lloyd Edge. Picture: Supplied
To ensure your co-ownership journey with your loved one is a smooth one, the 45-year old, who has also written a book on property titled Positively Geared, shares the positives, negatives and different options available to safeguarding yourself before you buy.
Pros
It’s easier to secure a bank loan.
One of the biggest hurdles that an individual will face in their property journey is obtaining finance. If you apply for a mortgage with your partner, there is a higher chance of approval, as your combined income will lead to a more competitive interest rate and a larger borrowing capacity.
If both of you have a good credit score and stable income, this will increase your chances of success.
If both of you have a stable income, it could increase your chances of getting home loan approval. Picture: Sarah Matray
Setting up a future for your family
Property is an emotional investment, as you’re choosing a specific area and dwelling that will become a huge part of your life. Setting up a future and making a lifelong commitment to a person is a huge milestone that you should be proud of.
If you’re thinking about having children or owning a pet for example, take this into account and purchase a property that has a caters to those needs, such as a garden or spare bedrooms.
One of the properties Mr Edge bought as part of his investment portfolio. Picture: Supplied
Cons
Your partner could impact your borrowing capacity
On the flip side, it could actually be harder to obtain finance if your partner is not working.
If your partner is dependent on you and is unable to provide documentation to illustrate a stable income, the banks will not look favourably on your situation as it’s a risk to them.
If your partner is not working, seek advice from a reputable mortgage broker who can source a loan to best meet your circumstances.
Be sure to be aware with the potential downsides of shared property ownership too.
There is a risk involved if the couple separates
Although obvious, it’s surprising how many couples enter co-ownership without the appropriate structure or agreements in place. It’s hard to predict what will happen in the future, and despite people’s best intentions to remain civil, this is not always the case.
Ways to safeguard yourself
Choose ‘Tenants in Common’, not ‘Joint Tenancy’
Tenants in Common allows two or more individuals to own a specific percentage of the property e.g. 50/50, 60/40, 70/30.
Before you purchase the property, decide what percentage you’d like to own and set this up with your solicitor. Each dependent owner can then control their specific portion.
There are a few reasons why Lloyd Edge recommends this:
“If you are contributing different amounts towards the purchase or you want to maximise the tax effectiveness of the asset if it’s an investment property.
Maddy and partner Sam purchased their first house and land package for about $650,000. They have opted for a variable rate home loan. Picture: Mark Stewart
However, the main benefit and difference to Joint Tenancy is that if one of the owners die, their share doesn’t go to the surviving co-owner, it is distributed to the person stated in their will,” he said.
In the event of a break-up, the parties need to either come to an agreement as to who keeps the property and one partner might pay the other out, or they need to sell so both partners receive the funds.
Lloyd Edge with his wife and their child. Picture: Supplied
For investment properties, distribute the income to the lowest income earner
The income received from rental payments should be distributed to the lowest income earner or distributed throughout the family to lower your tax repayments.
If you’re looking into this, I strongly advise that you consult an accountant to ensure the structure and set-up is correct.
“It’s easy to get caught up in the excitement as you start to plan your dream home together, but it’s important that the above factors are considered. It’s important to also seek professional legal and financial advice to ensure you are making the best decision possible for your situation,” Mr Edge said.
