WRITTEN BY SAUL KLEIN
I will have an entire series on this subject soon if there is an interest. We call it “Syndication” and it may be your key to financial freedom and a successful real estate business.
Considerations When Purchasing Property With Others
Whenever you consider owning property jointly, there are long-term considerations to bear in mind. We have highlighted a few important points to clarify before going to contract:
1. Look at the relationship of all the buyers. As college roommates, the longevity of the relationship may be limited to a few years. Project what will happen if one party wants to be bought out at a later date. Can one of the buyers handle the mortgage payment and buy out alone? Often times it will take both incomes to support the payments. If one party opts for a change, where will that leave the other owner? Will you be forced to sell? It may be prudent to build in a “notice” clause in your agreement to allow for time for one party to sell their interest. Do you, as the remaining buyer have a right of “first refusal?” What if the other buyer sells to someone you are not comfortable with? These are questions that may dampen the initial enthusiasm of home ownership but are critical to harmony later on when the relationship may shift for any number of reasons.
2. Provisions on an agreement might need to address additional persons one or the other of the owners may want to bring into the jointly owned property. If buyer #1 brings in another person to live with, that makes buyer #2 crazy, then it is better to have some kind of provision for settlement prearranged for possible problems or complications.
3. Decide how the title will be held prior to purchase. As joint tenants, if one party dies, the other party enjoys the right of survivorship. However, if the title is held in a tenancy in common, one party can dispose of their share to whomever they choose, leaving the other divisional owner at a possible disadvantage depending on the circumstances.
4. Outline a set of guidelines for repairs in advance. If one party wants to put on a new roof, and the other party doesn’t want to invest the money, what happens? Delineating specific points of repair or replacement can make improvements an easier subject to deal with. Keeping track of which owner has contributed the investment/improvement dollars can make reimbursement at the time of sale easier and clearer.
These are just a handful of the questions you may want to ask yourself before investing with others in the homeownership/real estate investment game.