Tenants in Common versus Joint Tenants Property Ownership
Having the ideal ownership structure can halve the cost of owning investment property, so it’s critical you know how to structure it well, says Richard Sheppard.
When you purchase a property with another person, one of the choices you need to consider is whether to have the ownership structured as ‘joint tenants’ or ‘tenants in common’ and if the share of ownership is split half-half or a variation such as 90 per cent one person and 10 per cent the other.
A Basic Definition
Joint tenants’ ownership essentially means that on the death of one of the parties, the surviving joint tenant becomes entitled to the whole of the property. Tenants in common can be in equal or unequal shares, depending upon the proposed arrangement. On the death of one of the tenants in common, that deceased owner’s share passes into the deceased’s estate according to the will or, if no will is left, according to the laws of intestacy.
The Financial Implications
For both ownership structures, there can be significant legal and financial impacts. It is highly recommended that you seek advice from your legal representative and your financial advisers to ensure the structure suits your personal situation. The industry professionals you should consider discussing this with are your property investment adviser, accountant, financial planner and mortgage broker. Having the ideal structure can potentially save you hundreds of thousands of dollars and halve the cost of owning an investment property.
How can you halve the cost of a property?
The answer to this question is by choosing the ownership ratio correctly. If we run the numbers for a typical $500,000 investment property using a $50,000 deposit for a couple where the husband earns $100,000 and his wife has stopped paid employment, the net cost of owning the property with today’s interest rates and rent after all the tax benefits, if owned as 50:50 ownership, is very close to $180 per week. If the couple instead chose to use a 99 to 1 ownership ratio, the husband would be able to claim 99 per cent of the tax benefits, which would reduce the net cost of owning the property down to very close to $90 per week.
When considered in this context, this saving of $90 per week is substantial as it could be used to own another property, another home loan or just to help save up a buffer of funds in an offset account to help manage risk. This is one of the important considerations when building an optimised investment property portfolio.
Richard Sheppard is the Managing Director of inSynergy Property and Finance Solutions. inSynergy is a licensed investment property buyers’ agent that provides professional property investment advice, property market research and specialised mortgage broking services. Phone 1300 308 808 or visit www.insynergy.net.au