3 Real Estate Rules for Investing With Friends and Family
There are many ways you can raise enough money to buy your first investment property and start building a portfolio. One way to get into real estate is through a joint venture – that’s joining forces with others to build the wealth you need to buy real estate.
Friends and family – even colleagues – are the obvious people you might go to if you want to form a joint venture and invest in real estate.
But – and it hardly needs to be said – throwing any amount of money or investment opportunity in with people you know and care about, can be fraught with difficulties. In fact, it can be a minefield.
Follow these three simple real estate rules when investing with friends and family to ensure your financial (and physical!) survival.
HAVE CLEAR GOALS
Before you decide on a joint venture with friends or family make sure everyone wants the same thing. If you’re looking to build a significant portfolio, wanting to buy and hold over the next 20 years and see each of your investment properties increase capital wealth over time, great. But if Uncle Phil wants to retire next year and doesn’t have the time or patience needed to let that happen, you’re going to run into issues immediately. Find out what everyone’s goals are and create an investment strategy and timeline that you all agree on.
HAVE CLEAN DOCUMENTATION
Once you have agreed on a strategy, write it down, have all parties sign on and file it somewhere safe. Same goes for all of your agreements as to how much money is being invested, who owns what, who’s liable for what and what to do if something unexpected should happen. Real estate markets, job markets and life in general can be unexpected and throw us the occasional curve ball. Have you agreed what to do if someone’s circumstances suddenly change? Take the time to go through the scenarios, write it down and sign it. While written proof doesn’t always solve an issue, having a signed agreement is never going to hurt.
KNOW YOUR ROLE
You know the saying about too many cooks? Same goes for too many finance experts in an investment partnership. Or too many project managers. Be clear about what yours and everyone else’s role is and respect that position. Be clear about what that role entails and the expectations you all have. Ensure you have the time and money to take your role on without undue stress or anxiety. Having clear roles that you can all perform, and hopefully enjoy, will make sure every aspect of your investment has someone looking after it that really cares about the outcome, which is a great way to invest.
GET EQUIPPED BEFORE YOU START
Set your team up for success before you sign on the dotted line. A good investment strategy is about having the right plan in place, so your joint venture flourishes long-term.
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By Sam Saggers