How Joint Property Investments Work and Why You Should Consider Them

The UK property market has seen a persistent trend of rising prices in recent years and it’s an upward trajectory that’s made it increasingly challenging for buyers to enter the property market or expand their investment portfolios. As a result, a growing number of people are turning to shared property investments as a viable solution. 

This collaborative approach to property ownership allows investors to pool their resources, share risks, and potentially access more lucrative opportunities than they would be able to on their own. But what does investing with someone else really mean and what are the benefits of doing so?

BENEFITS OF JOINT HMO INVESTMENTS

ACCESS TO MORE OPPORTUNITIES

Investing in a property with someone else opens up more opportunities for investing in new geographic regions, new markets or sectors that can be challenging to invest in independently. Not only do you have the financial benefit of an extra person, but you can also share knowledge and networks to make more informed decisions, potentially avoiding costly mistakes and capitalising on opportunities that a solo investor might miss.

SPREAD THE RISK

This approach to buying an HMO means spreading the financial cost across two people. This means sharing the risk with someone else, which can make you more confident about undertaking a daunting project and less financially vulnerable. From dealing with unruly tenants to making repairs to keep the property secure, the complexity of being a landlord is made easier when the job is shared. 

INCREASED CREDIBILITY IN THE MARKET

Joining forces with a partner can increase your customer base and brand visibility as an HMO landlord, which makes it easier for you to build trust with your tenants and with agencies. You can leverage one another’s expertise and market knowledge. 

GREATER FLEXIBILITY

Joint ventures are typically structured as separate entities, with a set timeframe, in the eyes of the law, which gives investors more flexibility to explore different opportunities without the long-term commitment that would come with a traditional acquisition. With a joint investment, you can invest with an exit strategy in place when the objectives of the investment have been met. 

DEMOGRAPHICS OF JOINT VENTURE PROPERTY INVESTMENT

The trend for joint property investments spans a broad range of demographics, from young professionals and first-time buyers who may find themselves priced out of investing alone, to friends or business partners who might come together to explore property investing as a side venture or a new career opportunity. 

Couples frequently invest together as a way of building their financial future—similarly, family-based partnerships are common, with siblings often pooling resources to invest in rental properties to make extra income, or to transform an inherited property into a HMO. Each of these demographic groups brings its own dynamics to the investment process, which can influence everything from the type of properties chosen to the way decisions are made and profits are shared. 

WHAT ARE THE INVESTMENT STRUCTURES AVAILABLE?

Joint ventures can employ different structures depending on the parties involved and how the investment is split. For example, equity-based ventures mean the partners each contribute to the capital, which is then used to buy or develop the property, cover expenses and generate returns. 

In this structure, profit sharing is based on each individual’s contribution. Joint venture companies, on the other hand, are usually for larger-scale projects, where partners establish a separate legal entity or company to manage the investment. This is the most popular option and is commonly used if you’re looking to develop a property and sell it on, or ‘flip’ the property for a profit. 

KEY CONSIDERATIONS FOR JOINT HMO INVESTMENTS

There’s a lot to consider when investing in a property with someone else, and it’s a strategy that requires careful planning and clear communication. The first, and most critical, step is choosing the right partner to invest with. This is a decision that goes beyond just financial matters. You need your relationship with this person to be built on trust and compatibility, but also risk tolerance and decision-making styles. 

It’s also important to define roles and responsibilities early on in the process—who will be handling the day to day management of the property and who will be responsible for sourcing tenants? Understanding the answers to these questions before you invest will help avoid confusion and conflict later on, when it will be much more challenging to resolve. Creating a comprehensive legal document that outlines these details and more, such as ownership percentages and profit sharing, should be non-negotiable. 

Lastly, it’s essential to have an exit strategy in place, whether that’s a buyout clause, a predefined sale date or a set of conditions that need to be met before the property can be sold. This strategy needs to be understood and agreed upon by all parties, so that everyone knows how the investment will be wound up.  

TAX IMPLICATIONS OF JOINT PROPERTY INVESTMENTS

When you own a property with someone else, you’ll need to pay income tax on any rental income you receive from the investment and capital gains tax if you later sell the property on for a profit. In the UK, there are no specific exemptions for jointly owned property when it comes to stamp duty, but if you’re a first-time buyer or the value of the property is less than the threshold for stamp duty, you won’t need to pay anything. 

It’s also important to remember that when it comes to selling a jointly owned property for a profit, you’ll need to pay capital gains tax on your share of that profit. This is calculated by subtracting the cost of the property from the sale price, along with any expenses related to the sale. Your percentage of the gain is then calculated based on your share of the property. 

TO SUMMARISE

Joint property investments represent a powerful strategy for entering into or expanding your role in the UK property market, particularly in the face of high prices and fierce competition. 

• By pooling resources, sharing risks, and sharing knowledge and skills, investors can access opportunities that might otherwise be out of reach. 
• While challenges exist, many can be mitigated through proper planning and open dialogue throughout the process. 
• Understanding who is responsible for what, and making sure contracts are in place before signing on the dotted line, you’ll avoid conflicts later on. 

At HMO Architects, we’re on hand to help you create your perfect rental property that meets the needs of your tenants and boosts your profitability. Get in touch today to discuss your project.