Hello BP. I am looking for some advice on investing in property with a group of my close friends.
A bit of background first; Myself and my friends are about to finish university, and will be working our first 'real' jobs beginning in 2017. We are all quite capable of living below our means, and saving a large percentage of our income in our first one or two years of working. I am not sure exactly how many friends would be willing to enter into this with me, but lets use 5 as a benchmark.
My idea is that the 5 of us would save individually and all pool our cash into a sizable deposit. The current minimum deposit in my country is 20%, but with 5 of us, we would aim to put down as much as possible on the initial deposit. We would then split the ongoing mortgage payments between us, while renting the property out to tenants. The ultimate aim of this is to not only have the renters contributing toward the mortgage, but to also have the 5 of us contributing toward the loan. This way we could take a 30 year mortgage and pay it off much quicker (7-10 years or so).
My main assumption here is that it is beneficial to pay the mortgage off as quickly as possible, as to reduce the effect of accruing interest over the life of the loan. With 5 mortgage payments, PLUS rental, we would be able to achieve full ownership of the property in a (relatively) short time span. Of course we would look to purchase further houses using this method, each time combining 5 deposits/leveraging other properties to put a larger dent in the loan that would be possible if I was investing by myself.
Am I wrong in assuming that this is fundamentally a better situation than borrowing and buying a house by yourself? Obviously the income stream would be split 5 ways, but so too would any maintenance costs, thereby reducing the overall risk of not being able to meet any unexpected bills.
Take a 30 year mortgage on a $500,000 loan, for example. Using current rates in my country, over the life of that loan you would pay $532,000 in interest alone. Now lets say as a group, if we manage to shorten that to a 10 year mortgage, the interest would only be $153,000.
We live in a city that has a large student population, and I see ourselves operating similarly to one of the many property management companies who offer rentals to students.
I know that the obvious issues would be to do with the structuring of the partnership/LLC/whatever. It would all have to be laid out clearly regarding how much each person contributes and what happens if a member can't make a payment, etc. But outside of these logistical issues, is there any gaping hole in my logic as to why this would be a bad idea? Solely from a profit maximization standpoint, this certainly seems like a better option than going solo to me, both in terms of acquiring multiple properties faster, and reducing per person risk. But I am entirely new to this whole thing, and I welcome any and all input from those with experience on here.
Thank you.
