Everything You Need to Know About Co-Owning Real Estate

Co-owning real estate is typically not easy. It requires coordination with your group, finding a group, and oftentimes dealing with unfair governance rights. Co-owning any property is a serious undertaking but can be extremely rewarding and lead to amazing partnerships. Understanding everything you need to co-own real estate is also a long list that, up until recently, did not have a singular piece of software to do any of it. This post explains everything you need to know in order to start co-owning property.

Co-Buying Property: What is it? and everything you need to know

Everything you need to co-own real estate can be broken down into a few categories: legal, financial, management, decision-making, exit, and miscellaneous. Each category has its own challenges, and a single person not being on the same page as the group you are co-buying the property with could ruin the experience for everyone.

What is Co-Owning Property

To start things off, we need to all be on the same page as to what co-owning real estate is. Co-owning real estate is when a group of more than one person buys a property together. When you co-own real estate, you are entering a business agreement with this group to actually own the property. Your name will be on the deed, and you will own the equity upside, tax depreciation, and cash flow.

Benefits of Co-Owning Property

The benefits can highly outweigh the negatives with the right tools and software:

• Lower Financial Barrier: Shared investment reduces individual financial burden, making property ownership more accessible.
• Diversified Investment: Spread risk and enhance portfolio diversification by owning a share in multiple properties.
• Shared Responsibilities: Split maintenance, management, and repair tasks, reducing individual workload.
• Increased Buying Power: Pooling resources allows for purchasing higher-value properties or better locations.
• Enhanced Social Experience: Enjoy shared use and decision-making with trusted friends or partners.

Drawbacks of Co-Owning Property

The drawbacks and negatives of owning real estate mainly persist around the coordination aspect. Most people cannot comprehend that real estate will take some amount of work, and taking a purely passive approach with co-owning might not be for you. However, a single person who is active can make up for the rest of the group's passive management position.

• Potential Conflicts: Disagreements over decisions, management, or usage can arise among co-owners.
• Complex Legalities: Managing legal documents and ensuring fair agreements can be complicated.
• Shared Financial Risk: Financial issues with one co-owner can affect all parties involved.
• Limited Flexibility: Selling or exiting the investment can be more difficult and may require agreement from all co-owners.
• Management Challenges: Coordinating maintenance and property management responsibilities can be cumbersome.

Key Considerations for Co-Owning Property

Legal

• Co-Ownership Agreement: A legally binding document outlining the terms and conditions of the co-ownership, including ownership percentages, responsibilities, and dispute resolution procedures.
• Title and Deed: Ensure the property title and deed reflect the co-ownership arrangement, with each co-owner's name and ownership share.
• Mortgage Agreement: If financing is involved, a mortgage agreement specifying each co-owner's financial obligations and repayment terms.
• Property Insurance: Adequate insurance coverage to protect against damage, liability, and other risks.
• Tax Documentation: Clear understanding of the tax implications and responsibilities for each co-owner, including property taxes, income taxes on rental income, and any applicable deductions.

Financial

• Budget: A detailed budget covering the purchase price, closing costs, ongoing expenses (mortgage payments, property taxes, insurance, maintenance), and an emergency fund for unexpected costs.
• Financing Plan: Securing financing, whether through a joint mortgage or individual contributions, with a clear repayment plan.
• Expense Sharing Agreement: Agreement on how ongoing expenses will be shared and managed, including utilities, maintenance, and any other costs.

Management and Maintenance

• Property Management Plan: A plan for managing the property, including maintenance schedules, tenant management (if applicable), and division of responsibilities.
• Maintenance Fund: A reserve fund for regular maintenance and unexpected repairs.

Communication and Decision-Making

• Communication Plan: Regular meetings and updates to ensure all co-owners are informed and involved in decision-making.
• Decision-Making Process: A clear process for making decisions, including voting procedures and conflict resolution mechanisms.

Exit Strategy

• Exit Plan: A strategy for when a co-owner wants to sell their share, including buyout options, selling procedures, and valuation methods.

Miscellaneous

• Legal Advice: Consultation with a real estate attorney to ensure all legal aspects are covered and to draft necessary agreements.
• Financial Advice: Consultation with a financial advisor to understand the financial implications and to plan for future scenarios.
• Property Appraisal: An independent appraisal to determine the fair market value of the property.
• Inspection Report: A thorough inspection report to identify any potential issues with the property before purchase.

Understanding all of this is hard. Realistically, co-buying property with anyone is not as straightforward of a passive business as you likely thought. However, using the right tools can cut down the amount of time as well as costs.

Tools to Co-Own Property and Real Estate

Together

Together is building the leading software that will remove the need to understand or worry about every facet of co-owning. A complete solution for co-owning. We use best-in-class legal agreements, and software that shows each member what is really happening with the property. On top of which you can manage and join your own deals without needing to meet the rest of the group using the Together property co-owning marketplace.

Stripe Atlas

Stripe can only help with some parts of the co-owning process. They allow you to create a new LLC/C-corp for the group which will be used to purchase the property.

Mortgage Lenders

The right mortgage lender will give you a loan with unlimited people on the mortgage itself. This can help you qualify for a better investment property than you could have alone. The right lender is really the secret weapon for buying properties to co-own.

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