Two Important Considerations Before Investing In Real Estate With A Partner
If you are looking for investment opportunities, a pretty solid argument can be made that real estate is one of the best options right now. As home values continue to climb, your purchase will likely grow exponentially over the next handful of years.
The current upward trend of the real estate market country-wide, and particularly in Florida, makes real estate investment a very appealing prospect. Therefore, a new trend of buying real estate for the sole purpose of investing is also on the rise, with friends and family members commonly partnering together.
However, there are some considerations one should make before taking this leap.
Carefully Consider Who You Are Investing With
Going into business with anyone, but especially a close friend or relative, faces the risk of the relationship going sour. There is a lot at stake when you are investing, and emotions can run high when you are either looking to expand your investment or run into a financial issue. Ask yourself these questions:
Do you share the same goals?
Goals and expectations should be agreed upon before committing to a property together. Do you want to buy a fixer upper and manage all the scheduling and everything else that goes along with getting a home ready for eventual sale? Or, do you want to purchase a move-in ready home, make some tweaks, and rent it out? Since we do live by the beaches, do you want to use this purchase as a vacation rental for snowbirds?
Discussing where you both stand on these questions (and more) will eliminate a lot of the headaches that could come from having differing opinions when searching for your piece of property. Be sure to consider every case scenario and come to a determination of how you will handle the situation, together.
Are all involved parties financially capable?
As enticing as an investment property is, finances should be there before moving forward. Not only is it important to make sure that you can afford this investment, but it is imperative that your partner does the same. You certainly do not want to end up stuck fronting most of the cost to maintain the property.
The same goes for credit worthiness, which can make a difference if you are both in need of lending to start your investment. A borrower’s ability to pay back a loan is assessed and the interest rate is dependent on it.
Make Sure You Are Both On The Same Page
Now that you have found a worthy partner, it is time to make sure you are on the same page about a number of different scenarios before signing your name on the dotted line. Here are just a couple of questions to consider:
What happens with the profits?
Before committing to a piece of investment real estate, you and your partner should come to an agreement on how you will split the profits. While it is possible that both parties contribute the same amount in down payment and split the cost of repairs 50/50, making it easy to divvy up profits down the line, the reality is that it is much more common for one partner to pay in more than the other.
Figuring out what this means for your partnership is very important. Ask yourselves:
• Will we split profits in the same percentage as the amount we were able to contribute from the start?
• Will the individual contributing less be expected to spend more time and effort in securing contractors, marketing the property, and getting it ready for rent and sale?
Also consider opening a joint bank account to hold any profits you make rather than one individual holding onto all funds. This bank account can also be used for paying the mortgage and other monthly upkeep (electric, water), household repairs and upgrades, and paying the experts you may need (contractors, real estate agents, etc.) to keep everything running smoothly.
What will be the time-frame of your investment property?
Try to decide in advance for how long you want to be invested in the property. The time-frame you agree on will probably vary depending on if you are fixing and flipping or holding onto it for a longer time to secure ongoing rental income.
In either case, be sure to discuss the steps you will take if one person chooses to no longer be involved in the investment. Will one person buy out the other or will you decide to just sell the home at that time instead? Will there be factors in play and if so, what are those and how will you deal with each as partners?
Do you both share all the responsibilities?
A lot comes with owning real estate so decide now if you will split the responsibilities evenly, and who is responsible for what. That will keep any one partner from feeling like they are doing more than their fair share.
Investing in real estate can be a lucrative choice for many, but you will want to make sure it is the right choice. When it comes to buying and selling, contact a real estate attorney you can trust, like those at Kira Doyle Law, to review documents, assist in negotiations, and protect your interests and legal rights.
Contact a St. Petersburg Real Estate Attorney for Assistance
Real estate transactions are not always cut and dry, and it is important to have your documents reviewed by an experienced real estate attorney. The attorneys at Kira Doyle Law can guide you in the acquisition and sale of property. Call our office at 727-537-6818 or complete the form below to schedule an appointment today!