What is the best way to go about purchasing investment properties with friends?

Asked by Kyle, Los Gatos, CA Mon Jan 7, 2008

Saw a question about forming an LLC, have see trusts, investment groups and so on. We are looking to purchase residential and commercial. Any suggestions?

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Tman, , 30642
Fri Jan 18, 2008

The best way to go about purchasing investment properties with friends ... is Not investing with friends - (or family) ... the courts are flooded with "friends and family" property cases.

One of my best friends in the Florida court system used to say: "never trade dollars and never trade keys - this way you'll never see me .."

1 vote
Barry, , Los Gatos, CA
Tue Oct 14, 2008
Best way is to have all parties together and list percentages of ownership. Upon process, I highly recommend getting something in writing from an attorney and hashing out all the details. I can assist you with that as well.
0 votes
Mehdi Safipo…, Agent, Campbell, CA
Sat Oct 4, 2008
Forming an LLC or partership is the easy part. You and your friend must understand each others goals. Your goals should be similar. Each of you should write down what is your gaols and compare notes, if your goals do not match don't do it!!
As for real estate agent, you should interview the agents and ask them questions about investment. Can they calculate Caps, GRM, etc. Do they know where to look for investment property and he or she can gives you plans on how and when you should sell your investment properties?
0 votes
Robert Duncan, Home Buyer, Altadena, CA
Mon Jul 14, 2008
The structure is unimportant (tenants in common, LLC, S corp), the key is that you all understand what is expected of whom. WRITE IT DOWN. Have a partnership agreement that spells out in clear language who is responsible for what, what happens with contingencies, what happens when you get into a fight (you are all friends now but be professional, what happens if you get irritated? You want a simple agreement to fall back upon that says, for example, you get 3 appraisals and average them to determine a buy-out price if one partner wants out, or if it's a vacation home, it's all cool until 3 of you want to use it at Christmas one year, so you fall back on the agreement that says you pick straws the first year for Holiday and then rotate from there). Make sure you write down the major things so you are all on the same page. Especially: what happens in a divorce??? Show it to a lawyer, don't go cheap.

Having said that my brother in law invested with 10 partners and did very well with a well thought out, compete partnership agreement over 20 years.
0 votes
Dolly Poston…, , Attica, IN
Thu Apr 10, 2008
Professionally speaking, I recommend you seek the counsel of a real estate attorney. Once having done so then analyze what suggestions the attorney provided you from a legal perspective and what your goals are in the investment. You and your friends should have the same goals in mind and set up a timetable as well as a schedule of how you each expect to achieve these goals. Then, interview Realtors who specialize in the types of properties you are looking at investing in. If you do not have a specific type state that to the Realtor and allow him/her to provide you with a wide variety of choices. A good Realtor should be able to locate the properties for you to investigate. Stating simply residential and commercial is very vague so you may want to consider just how "active" an investor you want to be. This may narrow the choices a bit. Above all, make a business plan and treat this as a business. The other advice given is correct, in my opinion, the courts are full of cases such as these... Remember, this is business; it is not personal. Best of luck in your investments!
0 votes
Bill Posada, , Los Gatos, CA
Thu Apr 10, 2008
My experience with partnerships has shown the best is not to have one. Ok, partnerships do have their positive aspects, share of liability, reduce cash requirements, etc. I recommend you meet and develop a game plan for the partnership, how is it going work, who pays for what, what are each partner's responsibilities, etc. Two very important items to discuss....duration of partnership (2yrs, 5 yrs etc) and exit strategy.

Once those items have been figured out...see an attorney (a must) he/she will provide the appropriate documentation and advice to how to establish you’re holding venue. Team up with a "full time" realtor who will work with you over the years and assist you in buying and selling the property. Real estate fees are significant thus interview a few agents who will provide maximum service with reasonable costs. Remember all fees are negotiable. Finally, since this is a business venture get together with a lending broker for loan guidance.

Good luck on your investment, I am sure if planned well it will be very profitable over time.
Web Reference:  http://www.posadarealty.com
0 votes
Andrea Wince…, Agent, Milpitas, CA
Wed Jan 30, 2008
I assume you all aren't paying full cash for your investment so it would make sense for you to ask for guidance from your bank or lender. They are going to want to know what is your mutual arrangement as part of the loan process anyways. I'm sure that a reputable lender has other clients that are investing with others like you. You can also consult http://www.legalzoom.com about forming an LLC (Limited Liability Corporation). I am curious how long you have known your investor friends. Kind regards.
0 votes
Brian Crane, , 95030 / Silicon Valley
Thu Jan 17, 2008
Buying with friends can be a great way to go! Less cash per person and spreads any downside risk out. It is possible to buy as "tenants in common" without an LLC. I agree with Matt, that any deal you put together between partners should have an agreement reviewed by an attorney though. One downside is the hassle of having to get everyone in the partnership to sign each document. Our company uses web based transaction management which would decrease the hassles of getting everyone together to sign the documents. Each partner would also need to submit a loan ap, income and credit verifications etc.
0 votes
Matt Irvin, Agent, Walnut Creek, CA
Mon Jan 7, 2008
No way meaning partners are a nightmare, but if you have to I would use an llc it is a good way to go from a liability standpoint. The best way use an LLC would be to purchase the property together then deed it into the llc after close. I would recomend talking to an attorney there usually around $750 to setup and then there is an annual fee.
Web Reference:  http://www.mattirvin.com
0 votes
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