Co-investing a property with friends?

Spot a good property investment opportunity but don’t have enough money to invest? Or having the intention of buying more properties but our loan eligibility or funds on hand are limited? The idea of co-investing with a friend may possibly be a good solution.

Co-investing a property with a friend has its benefits.  If you do not have enough funds to invest, you can share the investment with a friend. Both of you can reap the potential profits from the property investment without forking out the whole sum. By sharing the investment, you are sharing the monthly mortgage instalment payments, thus there will be a lesser burden on your monthly mortgage commitment. This way, you are also sharing the risk with someone instead of taking on the full investment risk.

In fact, with more friends investing together, theoretically you can buy more properties and diversify your risk. You can instantly be a multiple properties owner as well as diversify your property investment risks over the different properties.

In addition, another person can also help you manage your property matters. Especially if you are buying into an overseas property. By co-investing with a friend who is staying there can greatly assist you in managing the property affairs abroad. 

Some important considerations before co-investing

Before co-investing with a friend, one of the most important elements that must be present in the relationship is trust. As both of you will be managing money together, and mostly likely be having a joint bank account, you got to be sure that the other party is completely trustworthy.

Given that the other party is of good integrity and you can trust him completely, you will need to consider what are both of your roles and arrangements in managing the property. For example, who is supposed to coordinate with any repairs, tenants, getting the fire insurance, or any other matters pertaining to the property etc

Risk involved

Co-investing a property do has its risks. We may plan and assume that things will go our way, and everything will be fine. However, in real life situation, unexpected things do occur. For example, what if your friend needs the funds urgently and wanted to sell the property immediately while the market is lousy? Disagreement on your property affairs may surfaced. How will both of you manage it? What if now you are now the one who needs the funds urgently while your friend refuses to sell?

Other risk involved in co-investment includes the bankruptcy of one of the party or a default in mortgage payment by one party. When this happen, you may now have to bear the full burden of the property mortgage. In the worst situation, the bank may demand to force sale the property if you also cannot pay the mortgage.

Even if you can take on all the burden, it may result in a loss of trust with your friend. You may even feel embarrassed to chase back the money from your friend. The loss will not just be financial, but also the loss of a good friendship. Sometimes, a breakdown in the friendship could be even more painful than losing money.

Life circumstances could sometimes be out of our control. For example, death or loss of mental capacity of a person. In this situation, is there a Will, insurance payment or even a lasting power of attorney to safeguard you and your co-investment property? Usually in those circumstances, you will need to have a good legacy planning strategy done and implemented.

Therefore, do make your own judgement before taking the plunge. If you have any queries on co-investing, you can reach out to me.

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