Group Real Estate Investment

Getting a group of interested parties together to purchase real estate can provide great advantages. You can purchase real estate of higher value that what may be available to you individually. It can also be a great way to get started with real estate investing. However, there are some steps you should follow to avoid having problems down the line.

First, ensure your mortgage contains a non-recourse clause. This provision keeps the personal property of each group member from being at risk in the event of a default. The lenders recourse is limited to foreclosure and acquisition of the property. This means your personal property, other real property, and income are out of the lender’s reach.

Second, ensure you have a clear agreement between the parties on how you will split mortgage payments, property taxes, insurance and maintenance on the property. Include dates to comply with things like maintenance, and the possibility that unexpected repairs may need to be made.

Third, agree on how and when you will sell the property, including the possibility of a loss and how the loss will be apportioned. Although real estate investment is historically sound as a long term investment, short term real estate investors have faced problems in our current economy.

Fourth, consider setting up an entity such as a limited liability company for holding the real property. This will provide further liability protection and provide a clear way to spell out the parties responsibilities in the investment.

Lastly, make sure you do your due diligence in deciding who your investment partners will be. Many friendships and families have been in turmoil because of the financial issues surrounding a real estate investment. Understand your intentions, your exit strategy and your responsibilities before you make a decision.