For many South Africans, splitting the costs of entering the real estate market appears to be the ideal answer, given the country's unstable interest rates, high cost of living, and generally unfavourable economic prognosis for the near future.
If you have properly considered your marriage contract, making a purchase as a married couple could be completely natural, with pre-nuptial provisions protecting you from any unanticipated scenarios.
However, it is equally crucial to make sure that a watertight contract is in place to cover all eventualities when friends, siblings, parents, and children, or an unmarried couple engage in such an arrangement.
The circumstances of one or both of the partners may change, and we should never be lulled into a false sense of security because we are related to or in love with our purchasing partner, warned Andrea Tucker, director of MortgageMe.
Shared finances
Not all parties are equal. Depending on the people involved and the situation, this might be a 50/50 arrangement, or each spouse could contribute disproportionately.
“Purchasing partners have the option of ‘pooling’ their salaries or making a proportionate contribution to the property based on their individual earnings. If all applicants meet the financial institution’s requirements, which include meeting certain credit requirements, they will likely be granted mortgages for a single home,” Tucker explains.
Opening a joint bank account to pay for property-related expenses like bond repayments, insurance, rates and taxes is another financial aspect to bring up right away.
A joint account, when properly handled, may make cost-sharing fair and easy to keep track of. It’s also a terrific way to save money for a rainy day or an unforeseen house repair.
What does each partner bring to the table?
From the initial investment through the respective shares of the repayments, operating expenses, etc, the percentage of ownership must be very clearly stated, even who brings in which pieces of furniture.
The shareholding of each person should be reflected in the offer to purchase and, more crucially, on the title documents.
This will go a long way toward preventing any problems when it comes time to sell the property.
“It’s crucial to be aware that a lawyer would need to conduct this and that charges will be spent if the shareholding changes into one of the names only,” added Tucker.
But keep in mind that regardless of your share of the property, you and your co-owner are equally accountable for paying back your monthly bond instalment.
Banks mandate joint and several liability, which entails that you and your partner are jointly and severally liable for the entire loan amount.
Termination of the agreement
When you sign a purchase agreement, consider the eventual sale, which may be decided on by both parties, but which could occur if one of the non-romantic partners meets someone, gets a new job and must move, is laid off and can no longer pay their share, is retrenched, or even dies.
“The contract must specify how the partnership will end and how any sale revenues will be split. Real estate is a long-term investment, therefore planning is essential. Make sure you have a fair exit option, in other words,” she said.
Making smart choices
Another thing to think about is how important decisions will be made between the purchase and the selling, presuming you would be residing together in the home. Examples include making improvements to the property, decorating, and establishing regulations for communal areas like the kitchen and bathrooms.
These are just a few of the various issues that could arise when buying a property together. However, it is a great way to enter the real estate market and begin using the power of two incomes if you think and act intelligently.
“Joint purchase is a way of encouraging more people to own their homes if addressed in the proper way. This gives them a foundation in the neighbourhood and the nation,” said Tucker.
It benefits the economy and encourages more people to enter the real estate industry. It is a win-win situation for everyone if buyers choose their partners and homes properly.