What Are the Disadvantages of Having a Co-Owner?
Despite the benefits, co-ownership is not for everyone. There are several reasons why a landlord may choose to not have a co-owner:
Splitting the profits from rent and from a future property sale: Aside from having to split the rental income in the same ratio as your ownership stake in the property, you will also have to split the profits from the future home sale. This may seem obvious, but having both co-owners agree on when to sell a property and for how much does not always happen smoothly.
For example, perhaps you want to start another business and would need to sell one of your rental properties for funding. If you are a co-owner in that rental property, you will have to convince your co-owner to sell as well.
There are buyers in the market who will purchase partial ownership stakes, but the market demand for partial ownership is much smaller than the demand for full ownership.
Losing control over key decisions: The second disadvantage of co-ownership is losing control over key decisions such as how much rent should be raised and what type of maintenance should be performed. If you and your co-owner are on the same page and have a high degree of trust, this may not be an issue.
Risk of disagreements: What if you want to update the kitchen to get a better rental yield and your partner disagrees or doesn’t have the money? Then you would be stuck. Moreover, you don’t want to be caught in a situation where one co-owner wants to raise the rent and the other is reluctant to do so. Another example is if a tenant requests to have a pet or to install a basketball hoop or new appliance—you and your co-owner may not always agree on these decisions.
By co-owning a rental, you can divide the property management tasks, pool together your financial resources, and share financial burdens. However, you will lose control over decisions and need to share the profits with others. You should fully evaluate the pros and cons of co-owning before making the decision. If you decide to co-own a certain property, consider getting a good lawyer to avoid unpleasant situations in the future.
- How Can You Effectively Get Information From the Current Owner?
- How Long Does It Take to Buy a Home?
- Should You Arrange a Professional Inspection Before Buying a Property?
- What Should You Do When Buying a Currently Occupied Rental?
- Should You Buy a Foreclosed Property?
- Should You Buy a Single-Family Home, Duplex, Triplex, Fourplex, or a Condo?
- What Are the Benefits of Co-Owning a Rental?