Purchasing rental property can be a way to invest in real estate, and doing so with friends or relatives may seem like a good arrangement. However, a rental property investment carries a lot of risk, and there are some things you should consider before going into business with people with whom you have a personal relationship.
There are definitely some advantages to purchasing rental property along with family members and friends. If you have always wanted to start a family business, investing in rental properties could be a good start. And a partnership with a parent or sibling could allow you to spend more time together. You also might have an easier time convincing someone who knows you to enter a business relationships with you. If the venture is successful, it can be a good way to earn money and keep it in the family.
Whenever you go into business with someone, there are always potential problems, and those potential problems can be magnified when your business partner is a family member. If the rental property is not successful, it can be difficult to end the business relationship and still have a personal relationship.
One thing you definitely have to avoid when purchasing rental property with a friend or relative is taking advantage or allowing yourself to take advantage of your personal relationship. Don’t make handshake deals; put everything in writing. That includes who owns how much of what, how profits will be distributed and under what circumstances the business can be dissolved. You also need to have official tenant screening procedures in place and not allow friends and family members to live in the property without going through tenant screening.
Keep in mind, too, that once you put your name on a mortgage, you can’t get out of it unless the other partners are willing to refinance and buy you out.
Ultimately, when purchasing rental property with friends or family members, you should treat it like any other business arrangement, do your due diligence and put everything in writing.