Investing in a Home with a Partner – Cover your assets!
As housing costs increase Buyers and Investors are looking at creative ways to cover the costs associated with home ownership. Partnering up with another buyer can mitigate exposure, potentially improve your return as your choice and options will be greater and share the day-to-day responsibility and expenses associated with home ownership.
A few pointers:
- Firstly, choose partners that have similar objectives and realistic expectations. Ideally you can all bring something to the table; perhaps one has the property management expertise and another, extra cash.
- Choose a property that meets your needs. There are a number of Toronto neighbourhoods that have "pockets" in transition. Whether you are looking for a low-rise home, multiplex, duplex or condo, we can help with that!
- Look for a property that will have a positive cash flow over the short-term. Plan on holding the property for 5-10 years. If the plan is to Unless the plan is to reno and flip (high risk can result in high return or loss),
- A Partnership Agreement should be in place to protect your investment and give you peace of mind. It should address the following :
Who is going on title?
Who is managing the property? What are their reporting responsibilities and remuneration?
There should be a separate account dedicated to the property. Who signs the cheques?
Are there certain dollar thresholds? i.e. one signature for less than $500.00 etc.
What type of tenant is acceptable? What are the terms of the lease?
What renovations/maintenance/emergency fund are the partners willing to commit to?
Do financial decisions have to be unanimous? If there are multiple partners, does the majority rule?
How are disbursements handled?
What if one partner dies or wants to sell? Can the others buy him/her out?
How are disputes to be handled? Agree on an arbitration process and try to avoid court.
Rental properties provide a regular stream of income. You can deduct expenses from income, which may include: mortgage interest, insurance costs, property taxes, management fees, maintenance and upgrade costs. Losses maybe deductable for tax purposes.
Bottom line, situations change over time; sound accounting and legal advice upfront will ensure you can enjoy the benefits of partnering with another homeowner/investor and minimize the potential for headaches. Check out our article "Do You See Yourself as a Potential Landlord?".
The tax treatment of various types of property ownership is discussed on the Canadian Certified General Accountants site at http://bit.ly/Ybleqg
In Mark Weisleder’s article of April 12/ THE STAR he discusses the points that should be covered in a partnership agreement. Mark’s recommendations at http://bit.ly/12462Rx
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