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Joint Ownership: It Takes Two To Tango

 

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With the tight lending policies imposed by banks these days, your chances of getting your loan approved may be higher if you buy a property through joint ownership. There are three main types of joint ownerships: couples (married and unmarried), family members, and friends or investment partners.

In the last 5 years, we have been seeing a trend where more people who are not related to one another buying properties together as joint owners. Although this form of ownership is widely accepted today, there are still many concerns raised over unscrupulous people trying to take advantage of the buying power of a group to own as many properties as possible.

UNDERSTAND THE RISKS INVOLVED

FAR Capital chief executive officer and founder, Faizul Ridzuan went on to share a disturbing real life situation where you are meeting people in property seminars and then they are being delegated to join in a property investment with you. So you find yourself taking up loan on behalf of other people. For example, recently Faizul met a guy during an event who actually took on a loan and become a guarantor for a property worth RM9 million, after getting to know some new investors in a property seminar.

“While joint ownership has made house buying easier by pooling the resources, selling the house or any decision making in relation to the house can still be challenging. It’s not about majority because everything can only moves when there is a consensus, an unanimous decision among owners. Proper documentation must also be in place to safeguard the parties’ intention in making the collective purchase from the start till the end and everything in between,” says Chur Associates Managing Partner Chris Tan.

ANALYSE BEFORE YOU DECIDE

Mark Chua, bestselling author of the book “Who Says” and managing director of the 92Five Group also pointed out that many people just think of the benefits of joint ownership without managing the risk. A common mistake is that the partners concerned are not clear over their roles after pooling their resources together to achieve a more scalable property portfolio. For example, one party finds the property, another applies for the loan, whilst the other partner funds the initial down payment or manages the property concerned.

In other words, we should only consider a joint ownership if the other party brings to the table something that we cannot do on our own, for instance if you do not have the eligibility to apply for 90% loan, and your partner is eligible to apply for the loan but he is not familiar with the property market as you are. Thus in this joint ownership, you bring in skills to the table while he brings in the capital. It also makes the joint venture less risky to go into.

At his most recent public sharing, Tan shared that one of the legal trends in property investment that he has noticed, is that buying property as an investment is now moving towards the direction of collective rather than just individual.

Look before you leap

While it’s good to emulate the lions that hunt in a pack and ditch the old tiger mentality that hunts alone, one of the most common mistakes that partners concerned tend to make are they are not clear about the objectives of buying together, and also not clear on the exit strategy of their partnership.  They just jump right into buying the property without thinking about the future, for example, what shall be done if one party wants to sell but the other doesn’t?

If you are not careful and do not think through things properly, the financial burden will affect all parties of the joint ownership. For example, you have a bought a property together with someone but suddenly you are faced with unexpected events such as death, illness, recession, retrenchment or even strained relationships and would like to cash out on the investment. Therefore it is important to plan your exit strategy, and joint owners must agree on a solution in the event one owner is unable to fulfil any obligation. Basically, we must have the end in mind to prevent unnecessary dispute in the future and to protect the rights of owners.

You should also inform your family members about any joint ownership that you have taken before it’s too late. While they may initially be against it, especially if you are part of a married couple or bonded by strong relationship ties to parents and siblings. Hence, it is more advisable to maintain a level of professionalism even among friends and write down the terms, conditions, and objectives in black and white, before signing the loan agreement or Sales and Purchase Agreement (S&P) with anyone.

Last but not least, know your partners well before establishing a joint ownership. It is more important to understand each partner’s financial needs and plans, as that helps you to determine whether their goals are in line with yours, such as whether this joint investment in the property is for short term gains due to somebody reaching the retiring age and would like to create some quick cash, or for a longer term investment harping on capital appreciation to grow your wealth. After all, a serious investment deserves serious attention.

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