Buying a property with friends

Abiodun Doherty

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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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