Buying a property with another individual

[Anthony Musolino]

Hello all, I just wanted to know how many of you have invested with a friend or associate in hopes of obtaining a better quality of property. Is this something that is common practice ? If so, what are some things you can do to protect yourself in the case that the partnership goes bad ?

Does one partner go on the loan and the other partner go on the deed at closing ? I have recently been approached to partner on a deal to purchase a multifamily property. My fear is that the partnership goes bad and I’m stuck in a bad situation. Ive always been told that a buy and hold partnership is like a marriage.. everything down to the paint is a joint effort. Would you partner with someone you haven’t known for very long but together have the resources to make a good deal? All feedback is welcome. Thank you.

[Nathan Gesner]

I would not partner with someone unless I knew them very well and had a solid contract. Hell, I see life-long friends rent houses together and six months later they can't stand each other!

You have to really know the character of the individual and I wouldn't take that lightly with so much money on the line.

[Peter Mckernan]

@Anthony Musolino The partnership should be something that you build and buy over time (i.e. someone in your SOI, family/friend, co-worker). 

Always buy with an entity (LLC etc.), and line out all the rules, splits in cash/cashflow, profits, and work in an Operating Agreement. Also put in there how you will sell it, how will one partner get out and the other stay in etc. This needs to be lined out before. I would not go into it blind with someone you do not know. You would both want to be on the mortgage and deed.

I'm not an attorney or CPA, it would be prudent to talk with both of those professionals prior to making a full decision. 

[Anthony Musolino]

@Nathan G. That was my fear. I have pretty much built my portfolio alone. However, the thought of having the opportunity of purchasing a bigger property does kind of suck you in. I just have a gut feeling and alot of reservations about a joint venture with someone that I dont know too well. I hear about people partnering on deals all the time but when it comes down to it its a big responsibility. I just dont want to pay for a poor choice down the line.

[Anthony Musolino]

@Peter Mckernan cool, so create an operating agreement prior to any deals and make sure that we are both on the mortgage and deed. Is there a specific reason why we both have to be on the mortgage and deed ? I heard that some investors just like to be placed on the deed at closing because its less risky. Any truth to that?