Buying real estate with a friend

4 Replies

Hello. Two friends want to buy a property together. One person lives very close to the property (4plex) and has a lot of experience managing properties because he owns other properties over many years. The other has no experience in real estate but likes to invest in hands-off ventures like stocks. By themselves, none can buy the property, however together they can qualify. The person who will manage the property and lives nearby has all the down payment (60 000$) needed for the property but he doesn't qualify by himself because he has low income. The other person also doesn't qualify for the property because he's currently putting all his money into building a single-family house for himself to live in so he has 0$ available to invest in the 4plex but he has a very good personal income of 200 000$.

The person with no money argues that without both of them together, they cannot buy the deal but recognizes that the person who will spend time managing the property has an advantage because he will spend more time and money into the property. He proposes to share everything 30-70% in favour of the person with the down payment until his share of money invested is also 60 000$ at which point everything will be shared 50-50.

The person with the money argues that he's the one taking all the risk and doing all the work so the share proposed is not fair. He can look for another good deal (real estate, stocks or other ventures) by himself and not have to share. He suggests that he should get 100% of the income+10% for managing and pay 0% of the expenses until the income and expenses are equal to his 60 000$ down payment. Once the other party has also put 60 000$ in the property, they will split everything 50-50 but the person managing will get 10% for managing fees.

Both really want to go forward with this deal because they recognize the property is sold at a good price, they are very close friends and want to arrive at a fair proposal that both can agree on. Who of the two has the most reasonable proposal? What would be an even better proposal than what the two suggested? The goal here is to have a neutral party who will suggest the fairest proposal so that both parties will agree.

I bought my first deal with a friend and we still have it. 

We went 50 - 50 and I still sometimes regret how this has affected our friendship even though we have always talked things through. Beware it might affect your relationship down the line.

You need to put things on a timeline how long is going to be until he will put 60k towards the property?

Is the other friend ok with that time?

@Joaquin Camarasa Thanks for your input. Yes, everything should be and will be detailed in depth and in writing. We both plan to hold the property for a long time and can arrive at an agreement of what happens if we sell early. I'm sure we can agree on how long until the 60k is paid, the question is how to split things until then.

These two may not be 'very good friends' for long is my fear; the partnership sounds too unequal to me.

The person who is building the SF can get a LOC or construction loan on what he is building that way he becomes an equal partner.

If they pursue this they will need a lawyer for an agreement anyway so have the lawyer come up with the property ownership division if they are still unequal.

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