As the prices of homes in Australia continue to rise, many Australians are turning to the option of tenancy in common.
Rather than be locked out of home ownership, many smart thinking home buyers are joining forces with friends, family members or work colleagues as a sensible option to enter the first home buyer’s market.
The option of tenancies in common is making buying a home affordable and offers a great deal of flexibility.
The benefit of this arrangement is that unlike joint tenants, where the interest in the property purchased is deemed to be shared equally, tenants in common can have an equal (for example 50/50), or unequal (for example (30/70) interest in the property they purchase.
Another great thing about being tenants in common is that owners can individually bequeath their portion of the property in their will. When people are joint tenants, your interest automatically goes to the other property co-owner.
Also, one party could transfer their interest in the property without the property being sold.
Before you enter into an agreement, think about these five things:
- Be sure of your partner’s financial position.
- Most banks require that all tenants in common agree to be jointly liable for the entire debt amount, which means if one person can’t pay their portion of the mortgage, you will be responsible for making up the rest of the loan repayment for that month.
- A tenancy in common requires a great deal of trust.
- Many lawyers recommend parties draw up an agreement about how they will resolve any disagreements, including each persons rights and obligations, for things such as operating expenses, what should happen (and when to determine if) the property should be sold, how any profit or loss should be divided up
- Each party should have an exit strategy. While pooling resources to buy a first home is a great idea, there will be a point where lifestyles, relationships and circumstances change.