February is the month of love, and there’s nothing that says love and commitment quite like buying your very first property together! Co-owning a home – or even an investment property – can be a great way to start building a future together. Just like any other big commitment, however, it’s not something that should ever be rushed into.
Here are a few of the details you’ll need to hammer out to protect your happily ever after!
Who pays for what
There are a number of costs involved in buying a property beyond your basic bond repayments. These include once-off costs like your deposit, transfer and legal fees, and ongoing expenses like insurance, maintenance, rates and levies.
“It’s obviously very important to know how much you can each contribute to bond repayments,” says David Jacobs, Gauteng Regional Sales Manager for the Rawson Property Group. “But, you’ll also need to assign responsibility for the rest of the costs associated with your purchase and property ownership.”
Who owns what
Most co-owners match their ownership proportion to the proportion of costs that they cover. For example, if one partner commits to paying 70% of the expenses, that partner will usually receive a 70% share in the ownership.
“Just remember, the default division of ownership on a shared property purchase is 50/50,” says Jacobs. “If you want something different, this needs to be clearly specified in all the applicable documentation.”
Who lives where
If you’re buying property with a romantic partner, chances are you’re planning on living there together. If you’re buying an investment property to rent out or a home for just one of you, however, that needs to be clearly spelled out in your co-purchase agreement.
“If only one of you will be living there, will that person pay rent for the privilege?” says Jacobs. “Will this affect the division of costs like rates, levies and maintenance? If you’re planning to rent the property to a third party, you’ll also need to consider the responsibilities of managing tenants and how you will split the rental income and/or costs.”
How to deal with financial hiccups
Life is full of surprises, and not all of them pleasant. That makes it important to know what to do when life throws you a financial curve-ball.
“If one party in a shared bond finds themselves unable to cover their portion of repayments, the other bondholder or bondholders will be held liable for the shortfall by their lender,” says Leonard Kondowe, National Admin Hub Manager for Rawson Finance. “It’s always best to have a clear procedure for recovering these costs fairly, and handling any situation in which the other bondholders cannot cover the extra expense.”
In this event, Kondowe always recommends bringing the lender into the loop before resorting to desperate measures.
“Banks are very understanding and willing to compromise to help bondholders through tough times,” he says.
Bond insurance can also be a great way to protect against unforeseen financial challenges, covering bond repayments for the policy holder in the event of death, disability, loss of income or dread disease.
How to handle a sale
Ideally, you and your partner will agree when it’s time to sell, but what happens when that’s not the case?
“Maybe one partner will be given the option to buy out the other one out, or maybe you’ll agree to force a sale if either of you wants or needs it,” says Jacobs. “Either way, you’ll save a lot of angst and argument by agreeing on how to handle this before the situation ever arises.”
Don’t forget, you’ll also need to agree on the division of costs (compliance certificates, last-minute repairs, estate agent’s commission) as well as any profits from the sale.
How to end things if necessary
Sales aren’t the only reason a co-ownership might reach its conclusion. Breakups and even death can put an end to a shared property investment.
“It’s very important for co-owners to each have a last will and testament specifying what happens to their portion of the property investment in the event of their death,” says Jacobs. “It’s often simplest for a shared property to be sold when a partnership is dissolved for any reason, but there are other options available. It’s a good idea to chat to legal counsel before locking yourselves into a decision.”
