Can you Joint Purchase Investment Property?fjpinvestment
Buying an investment property with someone else, such as a friend or family member, is often an appealing choice when you’re just getting started in real estate investing. As noted by Jamie Johnson, CEO of FJP Investment, “This strategy is becoming increasingly popular, and for several good reasons. A joint purchase of property with family or close friends seems appealing because of the potential for reduced expenses, shared duties, and combined skill sets. For example, one may be good with finances while the other is good with things like maintenance”.
But, as with any project, there are common problems with this method that you should know about before you move forward and start doing it. In this article, we’ll discuss:
- The advantages of real estate investment with someone else.
- The drawbacks of investing with someone else.
- Top tips on making the most of your joint investment efforts.
Read on to find out if a joint real estate investment in the UK is a good idea and how to get started if you decide it is.
Is it a good idea to invest in property with a partner?
If you and a close friend or family member have been thinking about the idea of going into real estate together, you should know that there are several key factors to take into account.
In this article, we’ll discuss the pros and cons of investing in real estate with a partner to help you decide if it’s right for you.
The advantages of real estate investment with someone else
It becomes more affordable
Anyone who has ever purchased a home with a friend or significant other can attest to the fact that it is far more manageable financially. Two or more lots of income is better than one.
Due to the increased purchasing power afforded by a joint venture, more expensive properties may be considered as an investment. You can both contribute more toward the down payment and share the monthly payments on a buy-to-let mortgage.
Depending on the financial situation of those investing, it may be possible to forego the use of a buy-to-let mortgage in favour of paying cash for a property. This would save a lot of money because there wouldn’t be any interest to pay on a loan, which has been going up in recent years.
You can share the tasks and responsibilities
Property investments may be time-consuming with the numerous tasks involved, depending on the approach you use. If you take the hand-off investing approach, then of course this won’t be an issue, but it will eat into your profits due to letting agency fees.
Working with a partner in real estate investment allows you to divide jobs like paperwork, market research, landlord obligations, financial administration, and searching for your next investment opportunity.
Having a real estate business handled by more than one person may make the process much smoother overall, much like operating any sort of business with another person. This will necessitate that you get along with the person you intend to invest with, or it will cause problems down the line.
You can bring more skills and knowledge to the table
Not all ways to invest in real estate require professional knowledge and experience, but buy-to-sell investing, also called “property flipping,” does. This is because the goal is not to get rental income, but to get the best sale price possible after fixing up the property.
However, it is also the case that with a strategy like buy-to-let, you still need to know your way around the real estate market. Problems may arise if you purchase real estate as an investment without first learning the basics of what’s involved with investing in property.
This is where the benefit of shared responsibilities comes in. The benefit of investing in real estate with a partner is that you may each benefit from the expertise and experience of the other.
Investing in real estate with a friend or family member allows you to pool your resources and knowledge for a more successful venture. As they say, two heads are better than one. In this regard, it’s probably a good idea to think about what skills a potential partner can bring when choosing the right person to invest with.
You can potentially expand your investment portfolio more rapidly
It may be obvious to state, but it’s worth reminding ourselves that when you have more cash on hand in which you can use to invest, you may buy homes much more rapidly than if you had to save up the money first.
You can develop a profitable investment portfolio in the UK far more rapidly if you buy a property with someone else – perhaps even with more than one person – which is great news for people who are eager to start collecting rental income and seeing capital appreciation on their investment right now.
The drawbacks of investing with someone else
Partnership issues like disputes
If you have a close relationship with the person (or persons) you’re considering buying property with, you might want to think about how that partnership might affect your friendship or indeed romance. Not everything will necessarily go smoothly, and your partnership, and thus your friendship, may be tested.
Buying a home is a big financial commitment, and partners often argue over which investments are best and how to manage them.
A disagreement with your real estate property partner might reduce your earnings and force you to sell your stake in the venture sooner than expected.
Before starting to own and invest together, it’s a good idea to sit down with your potential partner and talk about this. Try to come to an understanding or agreement about how you’ll handle things if or when you disagree.
All parties will need to be credit-checked
Bear in mind that if you and a friend use a buy-to-let mortgage to finance a home purchase, you will each be personally responsible for making your mortgage payments on time.
If something were to happen to your property partner while both of your names are on the mortgage, you would be liable to pay off the full mortgage. It is therefore important to consider your potential partner’s financial situation and history before making a final decision. Being a good social friend does not automatically equate with being a stable financial partner.
You and your business partner should always prepare for the worst by making a thorough financial strategy for your real estate investment. What will you do if someone is unable to pay for a while? What strategy do you have in place to cope with this?
Risks with credit rating
In continuation of the points made earlier, lenders may inform credit bureaus if you or your investment partner are unable to make a payment for one month. I other words, a partner’s failure to pay, resulting in just one missed payment, could affect your own credit rating.
If this happens, it might hurt your credit score even if you’ve been on time with your share of the monthly mortgage payments. The lender is not concerned with which partner missed the payment, but that the payment was missed.
This is an important thing to think about if you want to get a new mortgage in the future, since you need a credit report to do so.
When you invest in a rental property with a partner, you will have to split the rental income and capital growth returns. If you invest in a rental property by yourself, you will get the whole return.
This is the most noticeable disadvantage of entering into a partnership to acquire real estate. You need to give some serious thought to whether or not the portion of the investment returns you’ll be getting will be sufficient to achieve your investment goals.
After doing your sums, it may turn out that you can achieve your financial goals more rapidly if you invest in a property that is less expensive but still enables you to reach them.
What You Need to Know to Get Started Investing in Real Estate with Your Friends and Family
After giving some thought to the points made above, you may decide that investing with someone else is the right thing to do for you. Before you buy your first investment property with a partner, you should think about the following tips.
Get yourself a trustworthy investment partner
Perhaps you’ve already got someone in mind who might make a good business partner in your real estate ventures. If you don’t already have one, now is the time to start looking for one and give careful thought to what you expect from them.
If you’re going to go into property investing with someone, it’s very important that they’re trustworthy and interested in achieving the same investment goals that you are. If you are at odds with your investment vision, then this may not be the right match for investing in property.
When it comes to investing in property, you might want to avoid considering your friend that’s always late or who changes their mind like the weather. Above all else, look for the qualities of stability and reliability.
Are both your respective financial situations stable?
Make sure the person or people you choose to invest with are in a stable financial position to avoid any potential problems down the road. What is their financial history? Do they have a good record of being financially prudent?
Make sure that if the real estate market takes a turn for the worse and your investment in property suffers, you and your partner are still financially solid and able to manage. You can do a financial “stress test” by asking what you would do if, say, interest rates were to increase any further.
Make sure you have a sound contract
Investing in real estate is a significant financial and time investment and must be taken seriously. A solicitor should draw up a contract outlining your rights and responsibilities as a property partner, so if something were to go wrong, you have a solid legal basis on which to act.
Ensure that this contract is as comprehensive and precise as possible, and that it addresses all of the key aspects of purchasing and managing an investment property. Details matter, so the wording shouldn’t be vague or ambiguous.
Focus on good communication
Effective communication is key, and so investing in real estate with a partner that you can’t get in touch with or have trouble communicating with is potentially a recipe for disaster.
There will be problems if you and your partner aren’t always talking to each other and sharing information. It’s not only important to be communicating, but it’s also vital that you are singing from the same song sheet.
Consistent and regular communication is essential for successful investment partnerships, as is an open discussion of investment objectives, company choices, and financial problems. A shared vision and goals mean you can effectively act as one.
Invest your money wisely
Finally, whether you are investing in real estate on your own or with a partner, choose investments that will yield substantial rental income and returns from capital appreciation. This will involve doing some market research and determining what target tenants you will be aiming to rent to, such as families or single professionals.
In prime real estate markets, investigate average rental yields, tenant demand, and home price increases. What areas are up and coming and show lots of potential? If you are targeting families as tenants, is the property located near good schools and transport links? This isn’t rocket science, it basically comes down to determining what your prospective tenants will be looking for.
The time spent on due diligence may be cut in half if you partner with other investors in your quest for a suitable property. As was already said, you can combine your time and knowledge to find the right property for your joint investment venture faster.