5 Things to Look Out for When Investing in Real Estate With a Friend
Investing in real estate can be an excellent way to build wealth and secure your financial future. However, it is not always the most affordable thing in the world. However, if you have a friend who is willing to invest with you, it can be a great thing for you both.
But when investing with a friend, it is important to note, there are a number of things to look out for that can make the process more complicated. Below, we’ll explore five key issues to consider when investing in real estate with a friend.
- Both your credit files will be tied to the mortgage
When taking out a mortgage to purchase a property, your credit score plays a major role in determining your interest rate. When investing with a friend, your mortgage rate will be tied to both credit reports, which means that any negative marks on one person’s credit report will affect the interest rate for both parties. It’s important to be aware of this, as it can impact the overall cost of the investment.
- Your credit score could be pulled down by theirs
In addition to affecting your mortgage rate, having a co-investor with a low credit score can also put your own credit rating at risk. If your co-investor defaults on payments, it can negatively impact your credit score, which can make it more difficult to obtain loans in the future. Make sure to thoroughly vet any potential co-investors and consider their financial stability before entering into an investment partnership.
- No easy way to move out
When buying with someone else, it’s important to be aware that there is no easy way for you to go about moving out if things don’t work out with your co-investor. Depending on the structure of your investment, it can be difficult and time-consuming to sell your share of the property or find a new co-investor. It’s essential to have a clear plan in place for what will happen if one party wants to exit the investment.
- You might struggle to get additional credit
When investing in real estate with another person it’s possible that one party may need to take out additional loans to make repairs or improvements to the property. This can be challenging if the other party has a lower credit score, as it may make it more difficult to obtain these loans. Make sure to carefully consider the financial stability of both parties before entering into an investment partnership.
- You might end up arguing about things
It’s important to have a clear understanding of each party’s responsibilities when investing together. This can include things like property maintenance, property management, and paying bills, as well as who owns what. Without clear guidelines in place, disagreements can arise, and you could end up in court over a quiet title action to prove ownership, for example, which can be costly and time-consuming to resolve. Make sure to have a written agreement in place that outlines each party’s responsibilities to avoid these types of issues.
Investing in real estate can be a great way to boost both your finances, but it is not without issue, so think carefully before you go ahead.