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Co-investing: Is it what you're looking for?

What you need to know about co-investing. Source: Getty Images/Carlina Teteris

Are you considering buying a property but don't want to bear the cost alone? It could be that the right choice for you is co-investing, or investing together with other people. Here's what you need to know about it.

 

For those who are familiar with the investment world, the term co-investing - investing together with other people - may be something that is not novel anymore. Is it common in Australia? What about it that we need to pay attention to?

SBS Indonesian asked David Sutantyo, finance broker and Managing Director of Sydney-based Twelve Grains Capital, regarding this matter. Here is snippet of the interview.

Is co-investing common in Australia?

Mr Sutantyo: "Yes. It seems that 6 out of 10 applications that we receive, they buy the property together with other people. In the past, buying property together was mostly with a partner or family, because it was for the whole family to live in. But lately, because property prices have soared and many people are afraid of being left behind, we often see clients who buy together with their friends."

Why do people choose to buy investment properties with other people?

Mr Sutantyo: "So basically, to share the load. Everything is shared together; down payments and stamp duty are collected together, and to make it easier to get a loan, it depends. In terms of income, the more income, the more borrowing power they would have. But if the said friends have bad credit history, this can have an impact on their loan application as well. So it is recommended to consult the broker beforehand so that everyone involved are equally comfortable.

How is the installment payment divided?

Mr Sutantyo: "It depends on what the agreement is. Maybe there are 3 people who want to buy together, they can share a third of everything. Maybe they want to buy both but split at 70:30. Whatever and how the agreement is, it's best to discuss it with their respective lawyers first, what obligations and consequences for each. This is very important. Many think that because of family or good friends, everything can be said. But in reality, when it comes to money, there is no such thing as friends or relatives."

If the property is leased, how is the income calculated? Does everything go directly into the installments?

Mr Sutantyo: "Not always. Depending on the property as well, there is a property called positively geared and there is something called negatively geared. Positive gearing is where the rent has covered the installments and other costs, such as council, land tax, property manager and others- Another thing. Negative gearing is the opposite, and usually negative gearing is for investors who want to minimize the income tax they pay. Now for positively geared properties, it is recommended that the rent that comes in is used to pay all of the expenses first, i.e. installments, council rates, and so on, before the remainder is divided maybe monthly or quarterly, or even annually."

What if you change your mind midway, and no longer want to continue it?

Mr Sutantyo: "It's also important to have a lawyer taking care of it from the start, so in the approval letter, this must also be discussed from the beginning. We can look at several options, but what is clear is that this requires a lawyer. The most common example is party A buying party B's shares, so the remaining installments must be refinanced, provided that party A is able to continue the installments on their own. The lawyer here is to take care of the legality with the government and the tax office. The second example, which is more practical, is that the property is sold and the profits are divided according to the percentage of the share."

All in all, does co-investing have more benefits or disadvantage?

Mr Sutantyo: "As all other things, everything has pros and cons, there are advantages and disadvantages too. The advantages, for example, are being able to save a deposit faster, you can get more loans if the income is combined, and all expenses are shared together. The attorney's fee as an advisor will be expensive, but this is really needed. Another disadvantage is that the rent must be divided, so you get less, not to mention there will be disputes, then sometimes it's difficult to treat this partnership like a business.If later on one party is late in paying an installment, for example, the other's credit scores will also be affected. So it's better to think about it carefully at the beginning, talk to your broker, accountant and lawyer, so that it's clear and certain what will happen in the future."

For the full interview, listen to the SBS Indonesian's podcast.


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