Owning a property yourself may seem enticing, but it requires serious planning, strategy, and execution. While it has its benefits, investment, maintenance, and responsibility often outweigh them. Interested individuals, who still aren’t able to solely add beneficial properties to their portfolio, often consider co-ownership or joint ownership. Our discussion in this article will revolve around co-ownership and its benefits.
What Is Co-Ownership
Co-ownership typically refers to the ownership of an asset shared with another individual or group. Depending on the terms mentioned in the contracts, the percentage of ownership is determined and distributed. The contract that defines the shares should also include tax obligations and profit shares. There isn’t a set rule of how a property is shared between the owners, but governing jurisdictions and legal relationships between owners may influence the nature of the contract.
In contrast to owning an asset, several benefits are associated with co-owning a property.
Benefits of Co-Ownership
The benefits of co-ownership include,
1. Better Loan Eligibility
The bank loans often depend on the monthly or yearly income of the applicant. The process may also get quite complicated if you don’t have any loan repayment experience. With co-ownership, the total income also increases. Therefore, banks tend to be more lenient towards granting loans of a much higher amount due to a minimized risk of bad debt. Therefore, you can get your hands on better properties with higher profitability potential than an immature asset that may or may not generate significant revenue.
Owning a property yourself compels you to take all the tax responsibilities yourself. The tax benefits you’re entitled to are yours, but it often overwhelms the owners with multiple properties in their name. Depending on the nature of the co-ownership, the tax liabilities and benefits are divided between the owners as per the contract.
For instance, if you’re a joint owner with multiple business partners, you all are individually responsible for filing your tax returns according to Schedule E. As the incomes and expenses are allocated to each investor separately, you don’t need to be overwhelmed with the returns and can focus on the share of your income and losses.
3. Repayment Flexibility
The borrowers solely determine the loan repayment or the EMIs in case of joint ownership. In contrast, loan repayments are solely your responsibility when you own a property. Although a mutual decision, co-ownership allows you to hand loan repayment responsibilities for emergencies like illness, family issues, and monetary losses—saving you from taking lawsuit loans. However, this benefit is only realized if you have trusted partners.
4. Easier Property Transfer
Owning properties solely in your name raises several inheritance issues after your demise if there isn’t a formal will. Even with a will, it can take years for the beneficiaries to actualize the assets.
In the event of the death of a property owner, the assets are transferred directly to the co-owners without the need for a will or probate. Even if you’re capable of owning sole properties, experts recommend finding a trusted partner in your spouse, children, or business partner to co-own properties with.
5. Saving on Investment
Location and development are two essential components of the property being as valuable as they are. However, with an excellent infrastructure, the costs of the properties also increase exponentially. Investing alone in those properties can make a serious dent in your funds and cripple your savings until the revenue starts to come in. Even with significant revenue generation, it may take years to recover your asset value fully. With co-ownership, you don’t need to invest in these properties alone and can make several investments in different assets without drying up your resources.
6. Similar to Sole Ownership
Sole ownership grants you the profits and losses of the subject property. However, that also comes with several drawbacks that we have discussed. Co-ownership empowers you to invest in the same properties with fewer funds, reduced revenue, and minimal risk—similar to sole ownership.
As long as your property is profitable, there isn’t any reason not to consider co-ownership and go with sole ownership if you lack the funds to own and maintain assets.
7. Better Purchase Opportunities
Co-ownership allows you to comfortably spend your savings on high-value properties without needing to go through your life savings. The available properties you can’t own with sole ownership are easily accessible through joint ownership. With better purchase opportunities, you can maximize your profitability and revenue generation—all without the risks of losing all your investments on sole ownership if something goes wrong.
8. Less Maintenance Cost
Typically, maintenance costs of properties remain constant whether you solely own a property or not. Therefore, with jointly owned properties, the costs are significantly reduced for each investor. Cracks in the wall, water lines, and electricals can add up to a significant amount if you’re the sole owner of a property. Moreover, if you have tenants, it may increase to a much higher level. Co-owning the same property with tenants reduces the costs as per the maintenance agreement between the investors.
9. Better Short-Term Rental Opportunities
Many companies allow real estate enthusiasts to invest a small amount, optimally around $25000, to invest in developing properties that they enlist in short-term rental companies like Airbnb and HomeAway. After a few successful cycles, they sell the properties and make the investors realize profits to enable them to make the next investments.
10. Vacation Home
Owning a second home can eat away at your life savings. But, when you co-own properties, you can ripe the benefits of having one or multiple vacation homes without investing that much in one property.
The Bottom Line
Hopefully, you’ve understood the expected benefits of co-ownership. It grants you better loan eligibility, more excellent tax benefits, and better repayment facilities. Moreover, property transfers are eased with co-ownership. With this arrangement, you can save a lot on investments and better properties without sacrificing the benefits of sole ownership. Decreased maintenance cost is an added benefit of co-ownership.