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Real Estate Partnership Questions

by Joshua Dorkin on November 16, 2006 · 34 comments

  

I was talking to some friends who were looking at purchasing a condo together. They wanted to know what I thought about the premise of them owning a rental property as partners.

Should friends or family purchase rental property together?

I try to advise people to stay away from partnering with friends or family, because more times then not, the relationship changes and not in a good way. With that in mind, if you are planning on a partnership, there are a few things I’d recommend you do.

Questions to Discuss:

  1. How you’ll purchase the property
  2. Who will make payments on the mortgage? Utilities?
  3. How will you split up any monthly profits?
  4. Who will manage the books?
  5. Will you manage the property or will you hire a management company?

    If there is NO management company

  6. Who will be the point person for contact with the tenants?
  7. Who will handle repairs or maintenance issues?

    If there IS a management company

  8. Who will be the point person with the manager?

  9. How much can one person authorize or spend without the other partner’s consent?
  10. What happens if one partner dies? Is incapacitated?
  11. If the property is sold, how will the profits (if any) be split?

Once you’ve talked about these questions and have agreed upon the answers, you need to have a sit down with a real estate lawyer. Draft up a partnership agreement and be sure you are both comfortable with EVERYTHING in it.

If you’ve got additional questions to add to the list, please let us know.

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{ 32 comments… read them below or add one }

jf.sellsius November 17, 2006 at 5:41 pm

I strongly agree with you that you should not partner with relatives or friends. As an attorney for over 25 years I have seen my share of horror stories–family members suing each other, not talking for years and terrible badwill where other family members are forced to take sides.
And this happens even if there is a well drafted agreement. It just isn’t worth the risk. I have seen disputes over the most minor detail that you would overlook with a non-family member. BUt family members argue over everything. Just don’t do it.

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TG May 11, 2013 at 6:33 am

Can someone answer this question?
I purchased a property with 3 other people in 2007. Everyone put in 1/4 of the money. One person held the deed. No partnership paperwork was created / signed. After several attempts over the years to get the deed holder to sell the property (she refused). Market crashed and all individuals stop speaking from 2009-2013. After 4 years of no contact, the deed holder is suing the other 3 individuals. The property continued to lose value over time and is now worth 1/8 of what it was had she sold it in 2009. What is our obligation in this situation?
Thanks

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jf.sellsius November 17, 2006 at 6:30 pm

PS: This happens even if one puts up the money (silent partner) & the other does all the work. There is no such thing as a silent family member or friend.

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Doreen February 7, 2007 at 5:12 pm

Hi, my name is Doreen & I’m not sure if u could help me or not but i just have 1 question. I would like to know the percentages if i rent out my home compared to if a real eatate rented it out for me. Statisticly am I better off going with an agent or doing it myself?
If u could email me asap that would be much appreciated.

yours,
Doreen :-)

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Joshua Dorkin February 19, 2007 at 10:44 pm

Doreen – What percentages are you looking for? Do you want to know how successful you will be compared to an agent? It depends on the amount of work you put in, and how you advertise. The best place to ask this question would be on our forums – http://forums.biggerpockets.com

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jun April 26, 2007 at 1:40 pm

My parents could not purchase a home because of their credit so the house was bought under my sister and my name with the money of my parent. I have records showing of the funds transfered. Now that my mom has passaway and wrote a will how the procede will be divided.
My sister who is in the deed and not on the loan is not agreeing and taking me to court for a higher amount. The loan is under my name only and been paying for the mortgage and property tax since she got married left the house seven years ago. She has been paying and living in the house five years before I moved in to take care of my mom. During that five years of her stay I shipped and provided two cars and upgrade the house with my own funds. My question is even thou my parents are not in the deed nor loan but it was their money that put a big down payment do the will of my mom take place at all? Does my sister have the right to force me to move out to get her share? What type of lawyer do I need?

Thank you in advance,
jun

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Lucille Edwards June 27, 2007 at 10:56 am

I am interested in buying property as pre-construction for a church.
We will hold the title and investor will pay $15,000 with a financial return of 20% at closing. The cost of the property as is (one small commercial building and a house) is zone general commercial. It contracted price is $350,000. Are you interested in financially investing?

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Artie September 28, 2007 at 1:46 am

Funny my wife & I were only talking about this last night, she seems to think it would be fine but can’t imagine it working. Even with a contract it is very risky & you can end up stretching a good friendship.
I certainly wouldn’t do it!
Regards, Art.

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Fernstudium / Studium October 2, 2007 at 1:04 am

i wouldnt buy one. i think a house is better und in lifetime cheaper than a condo.

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Studium / Fernstudium October 11, 2007 at 1:41 am

I would prefer the condo, a house will always be more expensive, if you want to live right in a city…

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simyo October 22, 2007 at 5:13 am

I bought a condo with 2 friends. Everything went very well and we did not even make a contract..

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John Legler March 13, 2008 at 2:27 pm

Question:
I am part owner with two brothers in a hunting camp. If I buy out one brother’s 1/3 interest and become a majority owner, does the other brother with only a 1/3 interest have a say in improvements being made and does he have to provide 1/3 of the cost of the improvements made?
Can I shut him out so to speak if he does not contribute a fare share? He is basically lazy and a do nothing.

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Harry Greenblatt May 12, 2009 at 7:15 am

Real Estate Partnership question.
My family inherited one third share in a number of properties. We do not want to remain partners. We want to either buy out the other two or they should buy us out.
How do we go about doing this?

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Amanda May 22, 2009 at 6:33 pm

My aunt owns a house with her brother in law in brooklyn,ny. She would like to sell it and buy a new home for herself and kids. however, Her brother in law doesn’t want to sell. Can she take her share legally and still get a fair amount without selling the home?

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arleen wolf May 29, 2009 at 1:34 pm

My stepson through illigal means became my partner in a vacation home in the Poconos & gives it to his friends to use. What is my right as an owner?

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Vanessa June 3, 2009 at 3:46 am

If you have other opportunities, do not try to purchase rental property with your friends or family.

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Eve Venters August 9, 2009 at 2:18 pm

My husband and I are half owners of a beach home with my sister and her husband. It has been the worse nightmare of our life. We have had all the responsibilities of this second home thrown on us. Our Partners will not lift a finger to do anything. We have been threatned physical harm. Damages have been done to the property. Threats have been made to throw our renters out. We have lost income due to the unpredictable situation. They take our scheduled time on the calendar and tell us they will kick us or our renters out. when it is not even their calendar time.I am in serious need to find out what legal action can be taken against our partners.My family has been harrassed to the point that no one in our home sleeps anymore. If anyone has any suggestions, please let me know. My husband and I brought in a third party to mediate the situation. But after dealing with this situation I think it will take some one in authority to get this issue straight. Please advise if anyone knows of any web site that I can go to that might give me information on case law opinions.

Thanks

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Fonic August 21, 2009 at 3:30 am

I bought a condo with 2 friends. Everything went very well and we did not even make a contract..

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Brad December 7, 2009 at 4:59 pm

HI,

I am part of a real estate investment group that has just bought a property. Three of our members are our executive and have done a lot of work in reserach and getting all the paper work done. It is important to compensate them for this work, but at the same time not eat away too much at the equity and profits we are trying to make. Is there a formula for this? Thanks

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Geo0319 December 19, 2009 at 1:12 am

My 2 brothers and I inherited property from our parents. One brother lives on the property and wants to pay all expenses (property tax, insurance, repairs, maintenance). Will this eventually give him claim to the property? Will it give him claim to the property even if we draw up a business contract and even if our names are on the deed?

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Kelly April 23, 2010 at 11:16 am

I just want to add for anyone that might be researching wether or not it is a good idea to go into any kind of partnership with anyone other than their spouse, that I am here because I am looking into it too late, and we havn’t even purchased the property, we simply started the process. Now we are faced with the damage of an amazing growing friendship, the loss is so much greater than the gain, no matter how great the investment might seem. Even if you think you are doing to invest in each others lives. If you love and care for the people that you are thinking about partnering with…..Don’t do it!!

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cedric fergus July 23, 2010 at 11:00 am

I looking at a real estate partnership for 4 units and two commerical rentals. Do I get a pick of the income(net) , profits(cash flow) and ownership. Is it in portion of my investment like buying 10 percent of the property means 10 percent of the net income, cash flow before taxes and property. Or is everything negotiated? Cedric Fergus

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dianne August 12, 2010 at 9:25 am

A partner and I bought 2 properties (rentals) – I got the loans he put in about 85% of the downs/closing costs. Years later I owe for repairs/vacancies and he wants me to transfer my 50% on the titles to him, and he will forgive my debt. The agreement was to buy and hold, and sell for profit later. If I give him my half, and erase the $25,000. debt – is there any way of figuring out if I should fairly get a % of the profits assuming there are some? ie., how can one put a value on my getting the loans (he didn’t qualify) and keeping the loans. He cannot re-fi now but will at soonest opportunity and then he will have the loans. There is no ill will here, but realtors and investors I’ve spoken to don’t know how to put a monetary value on me having used my good credit to get these rental homes.

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Denton March 30, 2011 at 12:25 am

I live in Texas. We have anew real estate investing partnership. The mortgage company insists that I be the holder of the mortgage, not the general partnership. How do we transfer the property (deed?) to the partnership?

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Nathan Belaire November 28, 2011 at 2:59 pm

Hi,

My sister and her friend bought a townhouse together 10 years ago. She now want to take her share out, but her friend and his wife don’t want to pay for the shares, neither selling the house. They want to stay there and pay her the monthly cash flow after expenses.

1. Can she force them to sell the house or pay off her share to completely own the house?
2. She is so tired of dealing with them, so can she give her ownership/partnership to me?
What is the advantage and disadvantage on transfer the deed to me?

Thanks

Nathan

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Lynn September 28, 2012 at 7:09 pm

Can someone send me a copy of their partnership agreement? Thanks.

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Joshua Dorkin September 28, 2012 at 9:54 pm
Milan P December 15, 2012 at 7:39 pm

Hi Joshua,

The link is broken, can you point to the correct one?

Thanks,
Milan

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Joshua Dorkin December 15, 2012 at 8:38 pm

What link is broken? There aren’t any in the post.

Milan P December 16, 2012 at 7:23 am

Sorry, I meant the link to which I was replying to re: partnerships. It was your post for Lynn for several partnership docs. The search query returns nothing.

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Joshua Dorkin December 16, 2012 at 8:41 am

Can you provide me with the link to the page you’re referring to? We’ll take a look and make a fix.

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Milan P December 16, 2012 at 8:46 am

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