You’ve found the perfect property in a great location, and you want to buy it to rent out to tenants. But there is one problem: the property is in too good of a location, and it’s out of your budget. One solution is recruiting a friend or partner to sign on as a co-owner. There are many benefits to co-owning, but having a partner has its own set of drawbacks.
Benefits of Co-Owning
Dividing Duties: Finding tenants, showing the property, collecting rent, performing repairs, handling finances are a few of the responsibilities entailed in becoming a landlord. Landlord duties can be hard to fulfill, especially if it’s just a side gig on top of a full-time job. Getting a co-owner can help divide these responsibilities. One person could be the face of the operation: talking to tenants and doing repairs while the other takes care of the behind the scenes tasks such as keeping track of finances.
More buying power: With two or more people pooling their money, there’s a greater opportunity for investing in better properties. Instead of one of the owners buying a house in an undesirable location, the team has the ability to buy a nicer property and gain more profit.
Less risk: Renting out a property can be uncharted territory for first time investors. The risk of failure is always there. With a co-owner, there is less financial risk because someone else is helping pay the mortgage and can assist with any type of emergency that may arise.
Bonding: Many people choose to invest in a rental property with a friend or family member because there is already an established trust. Co-owning gives them a chance to strengthen their relationship through consulting and decision making.
As rewarding as it can be, co-owning also has its drawbacks. This will be discussed further in the next section.
Disadvantages of Co-Owning
Income is reduced by half: Not only do the co-owners split the responsibilities, they also split the profit. The downside here is that each co-owner only makes half as much as what they would make if they were the sole owner.
Minimizes authority: Certain decisions must be made that both partners must agree on. Examples include remodeling the property or deciding to sell — if one person wants to cash out, the other person has to be on the same page. Disagreements can lead to legal disputes.
Failed Business Relationship: A failed relationship can be a result of co-owning a rental property. There are many decisions to make, and with each decision comes the chance of disagreement. Two brothers who co-own a property could ruin their relationship over house disputes.
If the pros outweigh the cons, co-owning can be the right move. It can provide a safety net for people who do not have the time or energy to be the sole landlord. Look at the situation at all angles before co-signing with a friend or family member or there could be consequences.