Friends or family investing together

Over the last year, several small groups each made up of family or friends have asked me to serve as their buyer representative when looking for property for them to buy together as an investment.

Shaking hands

At first blush, investing as a group may look like a low-cost way to invest in County real estate. Buying a building with a $500,000 price tag which is too much for an individual becomes much more feasible if several other individuals share in the purchase.

As attractive as this approach sounds, there are real risks which mean that it is essential to have a partnership or shareholder agreement in place before making an offer on a property.

When drawn up by a lawyer, such an agreement would cover things like:

  • how much does each person invest?
  • how are decisions made (e.g., about distributing profits, carrying out major maintenance, etc.)?
  • who looks after the property and how are they compensated?
  • what happens in the event of a cash-call?
  • what happens when an investor wants to sell? can they sell to outsiders? do existing investors have right of first refusal?
  • what happens if an investor dies?

Even the people we think we know well change over time. People lose jobs, move, get married, start families, develop serious illnesses, start they own businesses, retire, have kids starting university, divorce, etc., etc.

It’s hard enough for married couples to keep their needs and interests synchronized over the long run. It’s not simpler when there are several people involved.