Buying a property with others? Understanding ‘joint tenants’ vs ‘tenants in common’ ownership agreements
When you’re thinking of buying a property with one or more other people, there are a number of important considerations and decisions to make.
One of those decisions is the type of ownership agreement. People often confuse the following terms because they sound similar:
joint tenants, and
tenants in common.
Two things to understand up-front here are:
1. Even though the word ‘tenants’ often refers to someone who rents a property, here it refers to ownership
2. Despite these phrases sounding similar, they are actually very different approaches to buying property.
Let’s look at the key differences you need to know…
Joint tenants
Under a joint tenants agreement (sometimes also referred to as a joint tenancy arrangement):
- all owners of a property purchase the property together
- each owns an equal share or percentage— e.g. if there are three joint tenants, each owns a third of the property
- when the property is sold, the profits (or losses) get split equally between each joint tenant (i.e. each joint owner)
- if one of the owners passes away, there is a ‘right of survivorship’ where their share of ownership of the property automatically passes to the other joint tenants
- if one owner wants to exit, the entire property must be sold and the agreement ended.
As you can imagine, those last two points above can make a joint tenants agreement very tricky to manage and there can be conflict between the joint tenants if it goes wrong. In our experience, a joint tenancy arrangement may be better for a family or a married couple.
Tenants in common
Under a tenants in common arrangement:
- owners can own different percentages of a property — e.g. one owner may own 75 percent of the property, while the other owns 25 percent
- it's possible to purchase and sell the percentages at different times — e.g. so our friend with 75 percent could sell another 25 percent, or all of their share, whenever they like
- when the property is sold, the profits (or losses) are divided according to the ownership percentage of the agreement — e.g. our owner with 75 percent ownership would receive 75 percent of the proceeds or losses from the sale
- there is no right of survivorship — if a tenant (joint owner) passes away, there is no automatic allocation of their interest in the property to the other tenants; this portion can be sold to a new partner or purchased by the other tenants.
Thanks to there being no right of survivorship under a tenants in common arrangement, this type of ownership agreement is usually easier to manage than a joint tenants agreement, especially for investors. That’s because if there is a disagreement between the owners or one wants to move on, it is easy for one to sell their share.
However, it’s crucial to be aware of this potential downside of a tenants in common arrangement:
- any partner can sell their share to whoever they like, whenever they like, and other partners have little say in this.
That could be fine, or it could become difficult, depending on the people and personalities involved.
Need to discuss the pro’s and con’s of your specific situation?
As you can see, it’s not always a cut-and-dried simple decision to make, choosing between joint tenants and tenants in common when buying a property with others.
If you’d like to discuss your specific situation with one of our advisors, get in touch here. We’d be delighted to guide you and outline all of your important considerations.
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One of the most powerful decisions you can make with your superannuation is whether to run your own self-managed super fund (SMSF) and whether to invest in property through it. Most people know it's possible to use super to buy property. Far fewer know how to do it well. The following seven tips are designed to help you make the right decisions. 1. You Can Borrow Money to Purchase Property in Superannuation. Don't have enough in your SMSF to buy an investment property outright? Since 2008, superannuation held in a self-managed super fund can be used to borrow money for property purchase. This is done through a 'limited recourse loan' using a Bare Trust as the Custodian entity. You can't borrow the total value of the property—typically it's up to 80% for residential properties and 60% for commercial properties, with the required deposit held in the SMSF as security. The SMSF then makes the loan repayments, with rental income received by the fund and property expenses paid by the fund. Importantly, if there is a default on the loan, your other assets in the SMSF are generally protected from standard debt recovery and bankruptcy proceedings. The lender only has recourse to the property itself. Upon completion of the loan repayment, ownership of the property transfers legally to the SMSF. 2. Follow These 8 Steps to Set Up Your SMSF Setting up an SMSF properly can be a complex process. It’s best to set up an SMSF with the assistance of a qualified superannuation advisor, like us! We can assist with both the initial setup and the ongoing management of your fund. There are eight core steps to SMSF set up: Select the appropriate structure and name Sign the trust deed that covers how your SMSF is set up and run (it can have up to four members) Establish a trust for the SMSF by investing assets into the fund Register your SMSF with the ATO Set up a separate bank account for your fund Submit your tax file number (and those of any other trustees) Obtain an electronic service address to receive employer contributions into your fund (if applicable) Roll over funds from your existing superannuation account into your SMSF 3. Keep a Liquidity Buffer If you're buying property through superannuation, make sure you plan to keep a liquidity buffer of cash and/or shares in your fund. Lenders will check for this before lending to you—it should be at least 10% of the value you intend to borrow. But beyond satisfying the bank, it's simply good risk management. Property is an illiquid asset. Having accessible funds in the SMSF means you're not caught short if repairs are needed, the property sits vacant, or an unexpected expense arises. Because superannuation is central to most Australians' retirement security, the government has carefully regulated what can and can't be done with it. They don't want people gambling their retirement away on poor investments or incorrectly using their superannuation fund. 4. Use the Rental Income to Repay Your Loan You cannot live in the property you purchase through your SMSF until after retirement. Most people purchase an investment property and use the rental income generated to repay the loan—which makes excellent financial sense. The key is selecting a property that rents easily and delivers a strong rental return. Your purchasing criteria may look a little different to buying a home you'd live in yourself. For example, proximity to public transport, local amenities, and average rental rates in the area matter more than personal preference. 5. Get It Right and Enjoy Significant Tax Efficiencies One of the most compelling reasons to invest in property through superannuation is the tax efficiency on offer. These benefits can significantly improve the long-term return of a property investment compared to holding it in your own name. Key tax benefits include: No capital gains tax or tax no yearly investment earnings if under super caps. Salary sacrifice advantages if you're sacrificing salary payments into super, loan repayments are effectively tax deductible. Capped tax on investment income—the maximum rate of tax on income after expenses is 15%. Any capital gains on investments held for 12 months or more, is taxed at 10%. Standard investors outside super can pay up to 47%. 6. 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The key is understanding what you're getting yourself into: making informed decisions based on accurate data; keeping a diversified superannuation portfolio that doesn't place all your eggs in one basket; and not underestimating how complex buying property in superannuation can be. Sound Simple? It’s all in the details. If the above tips have made it sound straightforward, know that the detail is where the complexity lives. Getting professional advice from the start helps ensure you make the best possible decisions for your future. When selected according to rigorous property-purchasing criteria, property can be an excellent way to grow your superannuation and increase your chances of building a retirement fund that supports the lifestyle you want. Ready to Explore Property in Your SMSF? Whether you'd like to discuss whether an SMSF is right for you or need help setting one up, reach out to Ascent Accountants . If you want assistance managing the property within your fund, contact the Ascent Property Co team .
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