Abiodun Doherty
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abiodundoherty@yahoo.com
There are times when it seems that the most practical thing to do in order to buy a property is to buy with a friend or friends. When you are considering buying a property that is beyond your means and there is the possibility of teaming up with others to buy the same property, you will naturally look within your circle of relationship for those you can invest with.
There are benefits in teaming up with others to accomplish your real estate goals but these must be weighed alongside the challenges. If handled properly, you will be able to leverage your relationships to achieve bigger goals. However, if not handled properly, it could lead to the loss of precious relationships.
One of the benefits of buying properties with friends is that you have the ability to access more funds. Either by pooling your resources together or by approaching a banker and asking for a loan, you should be able to access more money.
Financial institutions would be more comfortable with a double guarantee for any loan. All things being equal, your combined assets should provide you with enough equity that you need to get a loan. If you decide to avoid the banks and simply rely on your available resources, this gives you the opportunity of having interest-free money that will be used to invest in property.
If you are considering applying for a mortgage with your friend, you need to ensure that your friend has the ability to carry out the monthly repayments. Since your credit is now connected, any default in making the payment will affect both of you. It could make borrowing money to fund other projects or real estate transactions difficult.
To avoid this, you and your friend or friends should itemise the items that could require regular payment and determine how much funds each of you will make available and when.
It is important that you discuss and agree on splitting the cost of shared expenses such as utilities, electricity, general maintenance and property insurance. Irrespective of how much each party contributed to the purchase, these items are likely going to be paid for in equal percentages.
Consider a scenario in which two friends purchase an apartment together and then rent it to a third party. The premium on the insurance, the repairs and maintenance are going to be shared equally. One of the ways of managing these payments is to have a joint account where a certain amount of money could be lodged for such purposes.
No matter how close the relationship might be among friends, it is necessary to define the legal nature of the relationship as far as the property is concerned in order to avoid frictions or misunderstanding later.
There are two legal options that your legal adviser might suggest. He may suggest that you operate as tenant in common or as joint tenants. In a tenancy in common, both of you have the same shares in the property and if one of the parties dies, his or her share will pass on to their beneficiaries. However, as joint tenants, if one of the parties dies, their interest will pass on to the other party because of what is referred to in law as right of survivorship.
There is no hard and fast rule as to which should apply. It all depends on the circumstances and the information you make available to your solicitor.
Whatever is agreed between the parties should be in the form of an agreement. It is also advisable that parties should include the nature of their relationship in their Will. Just like marriage, when you buy a property together, you can’t just walk away when there is a problem especially if a mortgage is involved.
Parties should preferably agree in writing on what to do if either party decides to sell in future and the other is not willing to sell. One of the issues to include is that the party that wants to sell should give the other party the right of first refusal or the opportunity to buy first and it is only when he or she is unable to buy that the property can be offered to a third party.
Due to the complications that could arise in situations like this, it is wise to choose your investment partner carefully. Consider this issue with your head rather than your heart by looking at and addressing issues that could be potentially volatile. More often than not, less is more when buying with friends.
Buy with one or very few friends, if you must do so in a group. The human relationship dynamics vary the more the individuals involved. While it could be daunting to achieve the right balance, if you do the possibilities are endless especially in the area of result, leverage and profitability.
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