For budding investors and first home buyers, combining the serviceability of two people often helps in financing a property purchase. Is it advisable to put an asset’s title in the name of more than one person?
According to accountant Munzurul Khan, a lot of new property investors pose the same question:
“My banks says that we need to have both me and my partner’s name in terms of the mortgage. Since we both need to be on the mortgage as part of the loan, do we also need to be on the title?”
The simple solution: understand their current financial situation and how it impacts the strategy they will use to achieve their goals, as well as their capabilities and limitations as an investor.
Mr Khan said that there is no one foolproof solution – they can choose to put the title in their own name, in their partner’s name, or even both of their names, with the choice depending largely on their ability to handle potential risks.
For better risk mitigation, Mr Khan recommended that investors buy their assets on individual name even if the mortgage is on combined names.
Having two names on a title could potentially bring more disadvantages than benefits, he said.
For one, risks could be harder to mitigate when working with two or more people’s risk profiles.
“Both of your individual risk portfolio is being brought back into the asset, meaning that if I go into the open world and something happens to myself, like some level of litigation, that property is subject to litigation as well. Same goes with my partner.”
“As opposed to just being on my name – the risk is a little bit lower. It’s one risk as opposed to two [risks],” the accountant explained.
Additionally, having more than one name on a property title may affect the owners’ land tax threshold.
According to Mr Khan: “An individual receives a land tax threshold, but as soon as we buy the investment property on a joint name that constitutes we are on a partnership, so rather than me and my wife having two amount of threshold, we are only entitled to one threshold.”
The land tax office attributes the entire amount of land tax even if a person only owns 50 per cent of the asset or half of the title.
Once the ownership of a property is identified as a partnership, it becomes a “land tax entity”.
“That means you have to pay the land tax rather quickly,” he said.
Due to these risks, Mr Khan advised investors to buy their assets on individual name even if the mortgage is on combined name as it creates more mitigation for issues that may arise in the future.