Shared Ownership Pros and Cons
Wondering what shared ownership is?
Have you been trying to buy a property of your own but are worried about your budget or high mortgage fees? Want to own a vacation home but are unsure of how it would turn out in terms of managing, redecorating, and maintaining? Are you dreaming of owning a luxurious property in a luxurious destination but just don't have the financial capability? If your answer is yes to any of the above questions, you might want to consider the Shared Ownership option. Shared Ownership, also known as Fractional Ownership, is owning a fraction of an asset (usually a property) instead of buying it in full. Assets or properties open for shared ownership are usually vacation homes from a luxurious destination that yield high income from short term rental. With this, an individual can own a percentage of this asset and will become a shareholder without spending too much or being too involved in the process of acquisition. Each owner still shares in all benefits of the property such as capital growth, usage, access, and income. At the same time, shareholders also share the responsibility in maintaining the asset such as wear and tear, bills, legal matters, insurance, etc. In most cases, a property management company runs the asset on behalf of all owners to ensure that it is properly maintained and operated and to mediate between all owners.
What are the advantages and disadvantages?
Shared ownership pros and cons forum gives some insights about what awaits potential shareholders in this industry. Below are the items you can refer to when you weigh down your options.
- Owning an asset without spending a fortune - Sharing of expenses - Ability to buy a luxurious property - More capital for an upgrade - Shared duties - Your share is transferable in case you want to sell it - and; Easy selling of share
Cons: - Limited time to spend in the property - Disagreement between co-owners (shareholders) - Conflict between vacation schedules - Restricted decision making
How does Stamp duty work in Shared Ownership?
Just like in any other property, stamp duty is still required for shared properties since it is the local government tax required to buy the property. However, the best thing about shared ownership is that you would not have to pay the whole amount of the stamp duty since it is also divided to all owners. Most of the time, this fee is already included in the purchase amount of your share so there's no need to pay it on top.
Every property management company who offers shared ownership options has its own rules when it comes to eligibility. Some countries require citizenship eligibility due to legal implications. Some require
a minimum amount of investment (up to 1 million dollars worth of assets) as proof of funds. But there are some that do not have very strict eligibility requirements as long as you can afford to buy the part.
In general, eligibility will depend on proving your identity and ensuring you have enough funds to buy the share.
Is shared ownership worth it?
For every type of investment, risks are always associated. Risks such as damage to the property, failure of the property management company to properly manage the asset, or any other unavoidable acts of nature can be a threat to your share. But since the investment amount put into shared ownership is lower compared to purchasing a property outright, risks also have a lesser impact. Shared ownership is best for conservative investors who want to own an investment property but do not want to get too involved or are afraid of a big loss from failure.
Is shared ownership better than renting?
Renting is best when you want to test a location to see if it suits your lifestyle. And if it doesn't, it is easier to leave by simply giving the notice to end your lease. In some ways, renting is more flexible because you have the option to enjoy short term leases with less commitment in cases that you change your mind. It is easier to leave the property should you find anything unfavorable. However, when you rent, your payment only goes to the usage of the property. It is sometimes called "dead money" since you are paying for someone else's mortgages. When you enter into ownership sharing, every amount you will invest will be towards owning the property. And since you are a part-owner, whenever the property value increases, your share also will increase. Not to mention, you have authority over the property in case of fixes and repairs. And finally, you wouldn't have to worry about paying a sizable deposit worth a few month's rent up up front which does not guarantee a return in the event of disputes.
What should you do before joining the scheme?
For every first-timer, it is best that you do enough research and make sure you are well familiar with the system that you want to enter. Read articles, join forums, watch videos, and find a mentor to increase your knowledge before diving into the water. When you have decided to make the purchase, make sure to choose a trustworthy company that has enough experience in this type of business. Read reviews, check their web page, and social media pages for their legitimacy and responsiveness. Make direct inquiries and ask anything you'd like to discuss before making a purchase. It is best that you get all your questions answered and leave no stones unturned prior to making a decision.
A property management company with a well-established communication system should be one of your top priorities in the selection process. Not only do they provide transparency by showing all communication lines open but also is proof of how legit they are. We hope this article helped you have a clear picture of what shared ownership is and answer some of your questions about it. If you have further questions, you can always reach out to us and we're happy to help.