Case Study: Is co-ownership the solution to cracking the market?
Property co-ownership with parents putting up the bulk of the deposit and the children providing the bulk of the loan servicing can be an innovative and beneficial way for parents to help their children get into the property market without some of the usual pitfalls.
Recently we assisted a mother and daughter buy a property together for $750,000 in Sydney. The daughter was to reside in the property and have a 60% ownership share, with the mother owning the remaining 40%. She would remain in her own home. The daughter could service a loan of $450,000 so this is the amount that was (jointly) borrowed. The intention was the daughter would service the loan ongoing. The mother put in the bulk of the other funds required i.e. the remaining $300,000 and they split the costs of stamp duty and legals. They also drew up a co-ownership agreement to ensure both parties were clear about the ongoing expectations and responsibilities of the arrangement.
The benefits for parents:
- No need to put their own home on the line i.e. they are not guaranteeing the child’s loan by providing their own home as security.
- They can potentially share in the capital gains upside when the property is sold.
- Helps their child into property with a smaller loan than would be the case with a guarantor option.
- No risk of losing their capital via a relationship breakup. Their child may get divorced or have a family falling out but the parent’s ownership % remains intact.
The downsides for parents:
- Capital is tied up with no return (besides future capital gains).
- Jointly liable for the loan with their child.
- Reduced ongoing borrowing capacity.
- For the children, the key benefits are a smaller loan to service and a leg up into the market. Give us a call today to discuss whether co-ownership could be a good option for you.