Buying a property: Multiple Owners

Danger Fourpence

Some friends and I have recently been discussing the idea of chipping in together to purchase and renovate a property. There are obviously large pitfalls in purchasing a place amongst friends but let's just assume for a second that everything is set in stone from day one and that the spirit of community is alive and well in all participants.

Would all parties be best off to start this endeavour as a business or is it better for 3-4 people to chip in together and apply for a joint mortgate? Has anyone gone down this path? What is the best approach?

DubCount

Nothing ruins a friendship like money does!!

If by "as a business" you mean forming a company, I reckon this will not be tax efficient. Paying corporation tax and then income tax on dividends is not the easiest route. Also, the bank will have a problem lending to a company. Limited liability for a company means the bank would be on the hook if you end up in negative equity, so expect much higher interest rates and LTV requirements if you can find a bank that will write a mortgage to a company.

If you go for some kind of partnership or joint ownership approach, the bank will insist on the mortgage being joint and several. If you have 4 friends borrowing 200k, this means you are not just liable for 50k each, you are each liable for the full 200k. This will impact on all the friends if they need to borrow money for any other reason.

What happens if one of the friends dies, or runs into financial trouble and becomes insolvent. What happens if more funds are needed than originally budgeted. You cant cover off all eventualities no matter how careful you tie things in advance.

Keep your friends for drinking pints and playing golf and stay away from joint investments.

JustMe,K

Friends and money do not mix.
Friends and property do not mix.

All is well and good until one persons situation changes be it financial reasons, relationship or family reasons or whatever. I have direct experience of renting a property to a friend and also people in my circle who purchased properties with friends in the past and none of us would do it again.

Now, if you are planning to form a company, fund the purchase of the property, renovate it, flip it and use the expected profits to sail off on your own purchase afterwards that's different, but it sounds like you want to live there. Plus, even 50k profit between 4 people isn't enough to set you up individually.

I have faith that the dire housing situation in this country will somehow get better, but to be honest even if it doesn't, its easier to make money than to make good friends. That's me assuming that you are all in stupidly priced rentals and that this is part of the motivator for the idea!

keoclassic

Starting to feel more and more like 2006 again. I left college that year and 2 buddies did exactly this. They fell out over it in the end. One got engaged about 2 years later and wanted to sell up just as the crash it, the other wanted to wait it out. It was a disaster.

Danger Fourpence

JustMe,K wrote: »

Friends and money do not mix.
Friends and property do not mix.

All is well and good until one persons situation changes be it financial reasons, relationship or family reasons or whatever. I have direct experience of renting a property to a friend and also people in my circle who purchased properties with friends in the past and none of us would do it again.

Now, if you are planning to form a company, fund the purchase of the property, renovate it, flip it and use the expected profits to sail off on your own purchase afterwards that's different, but it sounds like you want to live there. Plus, even 50k profit between 4 people isn't enough to set you up individually.

I have faith that the dire housing situation in this country will somehow get better, but to be honest even if it doesn't, its easier to make money than to make good friends. That's me assuming that you are all in stupidly priced rentals and that this is part of the motivator for the idea!

Cheers all for the replies.

The idea wouldn't be to make a large amount of money in flipping it but rather accumulate a few properties over time. I have the exact same reservations about it as everyone else has mentioned, I just think if everyone is in the same frame of mind going in, it's put in writing etc, then while there's a chance to fall out then there's also a chance to acquire further properties should it go well. Thanks for the feedback.

December2012

Well think about it - would you go into any other kind of business with your friends? Would you lend them money? If not, then why would you do this?

the_syco

Danger Fourpence wrote: »

Some friends and I have recently been discussing the idea of chipping in together to purchase and renovate a property.

Do you have the cash to fund this without a loan or mortgage, and if so, can the others?

Lantus

If you have huge sums of cash to fund this then great. Plus years of experience in property and building with solid experience of development then great. Have a good understanding on decision making and who will do it and who will just be a worker or fletcher!? Great. A fully stress tested friendship? Great.

This is as much about knowing yourselves as knowing the very easy to lose money market you are hoping to get into.

Pkiernan

Danger Fourpence wrote: »

Cheers all for the replies.

The idea wouldn't be to make a large amount of money in flipping it but rather accumulate a few properties over time. I have the exact same reservations about it as everyone else has mentioned, I just think if everyone is in the same frame of mind going in, it's put in writing etc, then while there's a chance to fall out then there's also a chance to acquire further properties should it go well. Thanks for the feedback.

Its not a bad idea.
You need to have solid entry and exit mechanisms for each partner.
This agreement should be drawn up by a solicitor.
If you're looking for mortgages it will probably i vlove a solicitor to represent each partner.

Personal loans, although more expensive, would be a lot less hassle to fund your project.

Danger Fourpence

Pkiernan wrote: »

Its not a bad idea.
You need to have solid entry and exit mechanisms for each partner.
This agreement should be drawn up by a solicitor.
If you're looking for mortgages it will probably i vlove a solicitor to represent each partner.

Personal loans, although more expensive, would be a lot less hassle to fund your project.

That's the key, no doubt. Everyone needs to know their role and only get involved if there's an agreement that the spirit of the project is the guiding principle the whole way through. The value of your investment may go down as well as up, right?

Anyway, the idea isn't to make a fortune here, but rather over time have something tangible that you could potentially move on.

Hollybeg

Danger Fourpence wrote: »

Some friends and I have recently been discussing the idea of chipping in together to purchase and renovate a property. There are obviously large pitfalls in purchasing a place amongst friends but let's just assume for a second that everything is set in stone from day one and that the spirit of community is alive and well in all participants.

Would all parties be best off to start this endeavour as a business or is it better for 3-4 people to chip in together and apply for a joint mortgate? Has anyone gone down this path? What is the best approach?

Lets be honest, you'd want to be bringing a lot of cash to the table for a bank to consider lending to speculate on property at the moment. A mortgage will not be straight forward... obviously the more individuals involved the more complex the proposal.

Personally, if I was considering borrowing to fund an investment like this, it would be on the basis that I have NO liability to the other parties involved. On that basis, you'd need to be prepared to input over 50% of the LTV needed (obviously on a pro rata basis split with your friends). For me, a joint mortgage in personal names would be completely out of the question. Too risky especially if one or more parties have weak net worths. For me this is an investment to be done through a company with a long term view (profits are retained, no dividends) with possibly the shareholdings owned by a seperate company. You really do need some proper advice from an accountant and / or tax consultant and a friendly chat with a business advisor in your local bank.

PHG

Doing it with one friend is tough, multiple friends seems like madness. Plus if there are multiple should you not have enough cash outright to buy it?

You will have many issues like

- what if one person does more work than another
- what if someone needs to sell for financial reasons
- how will you decide on an area and who does what in the business

Put it this way, let's say there are 5 of you in this. You all go out for lunch and can only eat 1 sandwich, how do you decide to make everyone happy? Some will want brown bread, others white others sourdough. Some want butter others mayo, then what filling etc. One or two will not be happy and thats just over a €5 sandwich... then you have a house and decisons to make together.


Highly recommend getting a legal agreement written by a solocitor and everything written out and signed.

the_syco

If one rooms is okay, and someone moves in, you'll have difficulty in evicting him.

=-=

Also, if one person stops paying, unless the rest make up for what that person didn't pay, I think all of your credit scores would be affected?