Want to invest in real estate but can’t afford it on your own? Co-owning a property with a partner can help make your dream of becoming a real estate investor a reality. Not only will you have someone to share all the responsibilities, but people who invest in real estate with partners tend to purchase more properties at a faster rate than those who go at it alone, meaning they have the potential to make more money over a shorter period of time.
Investing in rental properties always requires a lot of planning, and doing it with a partner even more so. In order to ensure success in your business, and keep your relationship intact, make sure you’ve covered all the bases.
Decide on a Goal
When it comes to owning rental properties everyone’s goals are different. Before you decide to invest with a friend or family member make sure your goals are similar. Unlike flips, owning rental properties is a long-term strategy. You both need to be comfortable with the fact that your money may be tied up for some time.
Discuss Time Commitments
Rental properties come with a lot of commitments. Besides all the financial commitments, you need to discuss the time commitments and how much each of you is willing to put into the property. If neither of you has much extra time available to deal with the day-to-day responsibilities of tenant management and maintenance, you might want to consider hiring a property manager.
Make a List of Responsibilities
When it comes to rental properties, landlords have several responsibilities. There’s tenant management, general repairs, maintenance, financials – the list goes on. And while these things don’t have to take up a ton of time, it’s important to know who will be responsible for what. I suggest making a detailed list and then determining which partner is responsible for what. For instance, one of you may deal with all tenant inquiries, while another deals with general maintenance issues. Make these decisions early on in the partnership so that you’re both 100% aligned before you take on any tenants.
Create a Joint Venture Agreement
No matter what kind of relationship you have with your partner(s), I recommend creating a joint venture agreement that details all of the rules and responsibilities. There are no set rules about what should be in it, but I suggest that you write out the financial contributions each of you will make, how profits (and losses) will be shared, the decision-making process, the details of the day-to-day management, and an exit strategy, including termination conditions, should one of you decide you want out of the partnership.
Open a Joint Chequing Account
In order to keep the finances straight, I recommend opening a joint chequing account that both you and your partner(s) have access to. That way you can see what each other is putting in or taking out, and there’s no messiness with personal accounts. A joint account is the best way to keep everyone organized and accountable.
Scott McGillivray is a real estate expert and host of HGTV Canada’s Income Property and Moving the McGillivrays.
