23 Jul One third of Aussie are willing to co-share – David Dawson
Property prices and their general inaccessibility are ongoing issues for many Australians. As such, millennials are turning to alternative methods to gain their first step onto the property ladder. One emerging trend enabling their dream is property co-ownership with friends and family. In fact, 31% of Australians said that they would consider co-buying property with a friend or relative. We talk to David Dawson from co-ownership site Kohab about how to prepare if that is going to be your strategy.
Kevin: With housing affordability the way it is around Australia, no doubt people are looking at creative ways to get into the market. We’ve talked about that in the show in the past in terms of co-ownership, so I was interested to see the other day that there is now a dedicated website called Kohab that helps people do exactly this, share the cost of purchasing a property with other people. Joining me now is one of the co-founders of Kohab, David Dawson who is also the CEO.
David, thank you very much for your time. Interesting concept, this. Certainly not new, but it does actually bring with it a few areas that we need to be aware of before we jump into this.
David: Co-ownership has been around, I think, for 260 years since tenants in common. So, it’s certainly not new, but more people are taking advantage of buying together, because as you said from the outset, affordability is beyond most people.
Kevin: So, tenants in common, explain how that works.
David: Tenants in common is one of the two traditional ways in which people in Australia will buy property – either that or joint tenants, traditionally. Tenants in common basically allows two, three, or four parties to buy together and essentially own a portion of an asset if they’d like.
So, couples, married couples, friends, it doesn’t really matter. Buying as tenants in common will own the asset in common as opposed to owning, and perhaps on their passing, joint tenancy goes straight to the next of kin.
Kevin: And also, tenants in common were able to split the ownership in certain percentages.
David: Yes, you can split it in any way you want. So, your property, the property portfolio identifier number basically just has a percentage following it once it’s registered with the land titles office based on the percentage of ownership. You need to make sure that you do do that, though.
Kevin: One of the big benefits of this, of course, is deposit. Putting together a deposit is one of the hardest things. How do the banks look upon coownership? Are they fairly relaxed about it?
David: 43% I think is the latest number of tenants in common contracts that have more than one person on the title. So, they’re very used to looking at it. I think it comes down to making sure that when you do get a loan, you get a loan that ideally is only assessed on your ability to service your portion of the debt as opposed to your ability to service the whole debt, which is why structuring it the right way allows you to have a smaller deposit if you’re buying with someone else and then only be accountable for your portion.
Kevin: If you had three co-owners in a property, it’s likely you’re probably going to have three different lenders, or do they normally go to the one lender?
David: It’s easier to go to the one lender. It can be done, again, because essentially, the asset is split three ways, but the reality is banks don’t really like it, so it’s probably easier to go to the one lender.
Kevin: Yes. I guess getting into this, the agreement that you would have upfront is very important. Many times, I’ve seen friendships come unstuck, even relationships come unstuck over the decisions that need to be made around property. So, setting that agreement in place is absolutely critical, I’d imagine, David.
David: Yes, the first thing that we recommend before anyone buys anything, before they even start looking, is to really understand your expectations and the expectations of your co-buyer or co-buyers and really be clear on what that is. Because as you said, it’s a big purchase, and unless you’re clear and flexible and upfront about what you’re looking for, then it can end badly.
Kevin: Yes, it’s a great way to turn a friend into an enemy by not getting your agreement straight. And as part of the agreement, having an exit plan or a strategy that you talk about upfront in the event that someone wants to sell?
David: Yes. Again, as before, tenants in common, co-ownership has been around for centuries, but the reality is I would treat it as a business partnership as much as a home or an investment purchase. So, being clear on what happens if one person wants to leave the group, how that’s funded, how the other people buy in, or is there a sunset clause in there?
Co-ownership doesn’t have to be a forever thing, it can have a sunset clause of whatever period you want that basically says “Right, this is going to get me on the ladder, but at a certain point in time we’re going to all agree to sell the asset.” And that might be one person buying the other out, or it might be putting it on the open market for full sale.
Kevin: Yes, co-ownership, of course, brings with it the sharing of all of the costs, and that agreement would come into play if someone doesn’t meet their own costs. The other people have the option to buy them out, David.
David: Yes, that’s correct. The co-ownership agreement that we have on our site – which is kohab.com – basically is a master document which then once downloaded and reviewed, you can strike out the parts that don’t relate to your relationship or add others in there, but it’s a pretty comprehensive agreement and a good place to start.
Kevin: Yes, I’ve checked the website out. There’s a lot of really good information in there, lots of tools to help you do this. As David just said, the agreement is there, all the information about even making it easier to get a loan and get the insurances that you need. The website is called Kohab.com.au. David Dawson has been my guest.
David, thank you very much for your time.
David: Thanks so much for having me on. I appreciate it.