Pooling together capital with friends to invest

[Jeff Hsieh]

Hi everyone,

I apologize if this has been brought up before in a different forum, but I'm looking for thoughts/advice and any experience when it comes to investing in real estate with friends.  We are 3 married couples (6 people total) thinking about pooling together our capital for an investment property.  The idea is that by pooling our money together, we would be able to afford a downpayment for a property we otherwise would not be able to.  A bit about us:

-We live in California (SF bay area)

-2 of the couples currently own a single-family home.

-1 couple would potentially live in one of the units if it were a multi-family home.

-5 of us have stable jobs, 1 is finishing up law school.

We have great trust in each other, but we recognize that things can get messy quickly when mixing friendship and money. We've already met up for a discussion to identify each of our goals to make sure that we have a compatible vision for the future. We've agreed that if any of this were to move forward, we would have detailed written agreements that cover as many bases as we can (i.e. what happens when a couple wants to sell but another doesn't?..etc) We briefly talked about setting up an LLC but not entirely sure how it works.

I'm looking for any thoughts from anyone that's had this type of experience before, good or bad, as we are still researching if this is an avenue we want to go down.

Thanks in advance for your advice,

Jeff

[Steve Kontos]

@Jeff Hsieh

This is exactly how I started.  Proper contracts as well as a clear understanding of your business model will help mitigate SOME of the risk.  I say some because at the end of the day despite all the contracts in the world, emotions might seep in and maybe one friend will want out and then you have to make the harsh decision as to whether they should honor the contract (business is business) or honor the friendship.