Budding property investors or homeowners often need two people’s serviceability to finance their property purchase, but is it wise to put an asset’s title in the name of more than one person?
Keshab Chartered Accountants’ Munzurul Khan said that one of the most common questions he receives from property investors is: "My bank [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: Study your current financial situation as well as your goals, capabilities, limitations as a property investor.
According to him, you can choose to put the title in your name, your partner’s name, or even both of your names on the title—whichever you think will work best depending on your ability to handle potential risks.
Many people argue that this approach brings more disadvantages than benefits.
First and foremost, risk mitigation could be a little harder to handle when working with two or more people’s risk profiles.
Munzurul explained: “Both of your individual risk portfolios is being brought back into the asset … [meaning, 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 risk[s],” the accountant added.
Additionally, having the property’s in more than one person’s name could also affect the owners’ land tax threshold.
According to Munzurul: “An individual … receives a land tax threshold, but as soon as we buy the investment property on a joint name ... that constitutes we are [in] 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 basically attributes the entire amount of land tax even if you only own 50% 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 pay the land tax rather quickly,” Munzurul said.
Due to these disadvantages, the accountant advises property investors to buy their assets on the individual's name even if the mortgage is in a combined name.
According to him, it creates a bit more mitigation for issues that may arise in the future.
Tune in to Munzurul Khan’s new episode on The Smart Property Investment Show to know which structure is best to buy in, the right balance of loan-to-value ratio, the ins and outs of diversification, and the right time to invest into other asset clouds.