Real estate has always required huge capital requirement to own one’s private home or invest in rental properties. This is evident in the few number of persons or companies investing in the space. In the last decade however –  with the advent of technology, we have experienced an increase in formal and informal co-ownership arrangements of rental properties as a means of entering the real estate market. This method of investing in rental real estate is encouraged today for young persons interested in diversifying into the space with their savings. However, before entering into this kind of ownership, it is important to be aware of the pros and cons of this sort of agreement.

This article focuses on co-ownership of rental properties.

Rental properties are real estate assets that are owned by an individual or entity and are leased or rented out to tenants. These properties can be residential (e.g., houses, apartments, condos) or commercial (e.g., office spaces, retail stores, industrial buildings). Simply put, if a property pays you rent, it’s a rental property.

Co-ownership arrangement allows multiple parties to share the costs, responsibilities, and potential profits of owning a rental property. When choosing who to enter a co-ownership agreement with informally, it’s best to carefully consider your investment partners and to have a good understanding of their goals and objectives before agreeing to buy a property together. If you are using an investment app and online platforms, due diligence must be done on the managing firm/app owner.

Pros of Co-Owning Rental Properties

1. It allows investors to access premium properties with lower entry costs, making real estate investment more accessible. This arrangement also provides a steady stream of passive income through rental returns, with less personal management required.
2. Co-ownership enhances portfolio diversification, enabling investors to spread their funds across multiple properties. This strategy minimizes risk and increases potential sources of rental income.
3. Co-owned properties often yield higher rental returns due to their appeal to affluent tourists and business travelers.
4. The model also offers tax benefits and the potential for property appreciation.
5. Co-ownership presents a lucrative opportunity for wealth creation, combining the benefits of building equity and generating income with reduced financial strain.

Cons to Consider

Informal Co-ownership of rental properties comes with potential challenges:

• Disagreements among co-owners can arise over property management, financial responsibilities, and future plans. These conflicts may lead to legal disputes, especially without clear written agreements.
• Financial complications can occur if one co-owner fails to pay their share of expenses or payments, leaving others to cover the costs.
• Co-owners may face limited control and flexibility in decision-making, as major changes often require unanimous consent. This lack of autonomy can be frustrating, particularly when individual owners wish to sell their share or make significant property alterations.

Use of investment apps or managed platforms

While investment apps like Fundrise and Rise offer convenience and accessibility, they also come with certain drawbacks. Here are three potential cons to consider:

• Limitations on Control: Often, these applications would present the investor with a selection of prepackaged portfolios or investment options. As a result, one may miss out on customizing their investments based on personal risk tolerances, financial objectives, and preferences.
• Higher Fees: Investment apps might charge more fees than would traditional brokerage accounts, even though there are a range of fees associated with these platforms. In the long run, it is these costs that reduce your earnings from this type of trading activity.
• Lack of Personalization: Unlike a human financial advisor, who can provide tailored advice depending on individual circumstances, these applications might not have the same level of customization when it comes to providing advice or support related to finance matters. This is particularly true for those investors who have complicated money issues requiring diverse kinds of investment plans.
• Poor management/service delivery

Conclusion

Co-ownership of rental properties offers a unique approach to real estate investment, with both advantages and challenges to consider. However, it’s crucial to weigh these benefits against potential drawbacks such as conflicts between co-owners, limited control over decision-making, and financial complications.

To make the most of co-ownership opportunities, due diligence, clear communication and well-drafted legal agreements are essential. These measures help to avoid misunderstandings and protect the interests of all parties involved. As the real estate landscape continues to evolve, co-ownership remains an attractive option worth exploring for those looking to enter the property market or expand their investment portfolio.

Want to co-own a property in Nigeria and have no idea how to begin? Visit our co-ownership website – www.co-ore.com or Send us an email today at hello@masterpiececapitalltd.com or simply call us at +234 816 771 9050.