Getting the funds to invest in property can almost seem like an impossible job, unless you consider entering the venture with a joint investor. However, while this does make investing more affordable, does it really make things easier?
We take a look at what joint property investment is, as well as the benefits and the drawbacks of this scheme.
What is a Joint Property Investment?
To put it simply, it is when you buy property with another investor rather than going into it alone. The amount does not necessarily have to be a 50/50 split, so if you have 70% of the money towards a property, you can put it all down and find an investor for the remaining 30%.
A commercial joint property investment is different from a Shared Ownership scheme, which is a scheme for residential property. A commercial joint property investment will not be done via the government and/or property organisations.
Pure Commercial Finance takes a little look at both the benefits and the downfalls of investing in property with a partner.
The Benefits of Commercial Joint Property Investment
Rather than a solo investor, having two or more investors will likely mean that together you will have a bigger deposit and lenders are likely to provide you with larger sums.
Therefore, this means that you will be able to purchase more expensive properties and, hopefully, see a greater ROI than you would with cheaper properties.
This scheme creates investing in commercial property more possible as it becomes more affordable. You will only need to provide half of the deposit and mortgage repayment, if you’ve gone 50/50, so investing in better properties becomes more feasible.
The financial risk doesn’t all fall into your lap, whereas if you were the sole investor, it would. You won’t be as vulnerable as you would be if you were on your own.
There are tax benefits too. You are actually only taxed by the government on your share of the joint ownership, rather than on the proceeds received from the whole property. Not many people know this and get put off by joint investments for this reason.
Another cost benefit, the price of maintenance, upkeep and redevelopment will be reduced, as it is split between those that are involved in the joint investment.
You have the flexibility to change the agreement, leave the joint investment and/or bring in new investors at any given time. Plus, you are welcome to sell your share of the property too.
While these are all great perks and reading the above probably makes investing in commercial property with a partner sound very tempting, like any scheme, there are also downfalls.
The Drawbacks of a Joint Investment
One of the biggest drawbacks to a joint property investment is finding a good mortgage lender, that has a great package to suit your goals. Sometimes, this means that you may have to pay higher rates and pricier initial costs when taking out the mortgage.
As previously mentioned, you do have the flexibility to change the agreement at any time, however, you will have to provide your partners with written notice of your intentions and receive approval of the action first. Any changes made will run the risk of incurring Stamp Duty Land Tax, which can be payable when a partner:
- Is introduced to a property
- Takes a property out of partnership
- Reduces their profit share
These may incur large charges, especially with bigger and more expensive properties. This is not something that can be borrowed either, which means you will need to have it on hand to pay there and then.
Furthermore, you need to know your partner fairly well and understand that they have the same interests and values as you. This will ensure that later down the line, there won’t be as many disputes – for example, it would be good to know where they stand on things such as buy-to-let rather than occupy and lease.
I previously mentioned friends and family. It is a good idea to invest with someone that you know, as it gives you a good idea of their financial background and information regarding any previous investments.
It is always good to talk to a commercial mortgage broker first, to help you get the best advice and the best deals on joint partnership mortgages.
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