Co-ownership of a Toronto property between family or friends can often be a rewarding and potentially profitable arrangement. Joint ownership of inherited properties usually comes after the passing of a loved one, leaving family members to go in together on a property without having to single-handedly shoulder the responsibility and financial burdens that come with owning a Toronto property.
Co-ownership can also be a great way for parents to get their kids into real estate investing. It’s important to know that these arrangements should be taken seriously if they are going to work long-term.
Plan for the future of the property
Before you set out on this exciting co-ownership venture, it’s important that you sit down with your investment partner(s) in order to discuss your goals and what you’d like to do with the property in the future. Establishing short and long-term goals for joint ownership will help all parties know what to expect in the coming months and years, especially if you are planning on using the property as a long-term investment and are looking to still be the property’s co-owner in two decades. Here, you’ll also need to plan for the payment of taxes, debts and liabilities associated with the property, getting the appropriate licensing to rent out your property, property management, and recordkeeping efforts.
It’s crucial for you and your partners to discuss everything that is going to happen or could potentially happen with the property – will you rent it out and be co-landlords? Will the owners be allowed use of the property when it’s not rented out? Who is going to be in charge of what with respect to being landlords? How will payment of taxes be handled? What kind of a legal partnership suits you best? How will you keep appropriate records of rent payments, utilities, and property taxes? All of these questions and more need to be answered by all co-owners before moving on.
It’s absolutely necessary to have all owners onside with an agreement, particularly since any owner can force a sale under the Partition of Property act. If one party is advocating for the sale of the property, and doesn’t want to use it as an investment property, it’s probably best for everyone to sell the property to avoid the potential legal entanglements – and bills – that this kind of action could bring in the future. Equally important is that all partners have the ability to pay the bills associated with the property should the property not manage to cover all of its costs, as this can lead to disputes and bad blood. If you’ve inherited a property, and one family member is not financially secure, it is probably best to buy them out of their share of the property to save on future headaches for everyone.
What kind of co-ownership is this going to be?
There are a number of legal considerations to co-owning a property, including what type of partnership your co-owning will officially be and what the tax implications will be on each partner. A simple co-ownership between two partners is the most common type of joint real estate venture, with many advantages including being taxed as an individual rather than a joint venture, meaning that each partner will only have to report their share of revenue received from the property.
Another major benefit is that the co-ownership can be structured to give limited liability to all partners in regards to legal problems that could arise. It’s important to speak to a lawyer or advisor with real estate experience before you proceed, as there are key differences between co-ownership and general partnerships that you and your co-owners may want to be aware of. If you are a parent looking to help your child secure a favourable mortgage through co-ownership, the resulting sale of the property will be subject to capital gains taxes, where simply gifting a property to your child through co-ownership would make the home subject to nominal taxes. In the end, an agreement drawn up by a lawyer is the best route to go. A lawyer can also advise if you should incorporate, have the property managed by a family trust, or any other agreement structures that make the most sense for your particular situation.
Ensure that all partners are taking equal responsibilities
Dividing the responsibilities between co-owners is a step that will make or break any such venture, as failing to do so can result in a variety of problems stemming from one owner being left with an unfair amount of responsibility compared to the other. You’ll want to decide on responsibilities regarding maintenance to the property, collecting rent from tenants and paying bills, showing the property to potential tenants, and listing the property on websites and social media.
There are some things that will require equal responsibility, including screening and choosing tenants. This will give you and your partner equal say in who gets to live in the property, and who you will both have to answer to for the foreseeable future. Having an equal hand in this responsibilities can be made difficult with other important things like carers, families, and hobbies taking up much of your valuable time. The most effective answer to this problem is to enlist the services of an experienced property management company like Highgate Properties, whose team of experts will oversee the day-to-day duties of managing your property, freeing you up to attend to the more important things in your life.
For more information about the property management and realty services offered by the experienced team at Highgate Properties, contact us today.