How to Buy an Investment Property With a Partner

If you’re just toying with the idea of becoming real estate partners with a friend or loved one, there are some major considerations to be aware of.

Investing with a partner can open up several options and possibilities that you cannot get by investing alone. Buying an investment property with a friend can be a great way for you both to make lucrative returns and use each other’s skill sets to benefit each other.

However, there are additional complications you face when buying an investment property with a friend or partner that you wouldn’t need to consider if you were investing alone. Setting up a partnership to buy property can be arduous, and may lead to disputes.

Here, we’ll look at the benefits of buying a rental property with a partner, along with the downsides that some investment partners face.

Better Affordability

As anyone who has bought a home to live in with a romantic partner or friend in the past will know, affording property is a lot easier when two people are contributing funds.

Having two people involved with one investment means that you can go for properties with a higher budget. If you’re considering a buy-to-let mortgage, you can also split repayments between you and put down a larger down payment.

This also opens the door to the opportunity to buy properties outright with cash rather than funding with a buy-to-let mortgage. This way, buying a property with a friend means you can have more freedom with the properties you want to invest in.

Shared Responsibilities

Depending on the type of real estate investment strategy you choose, property investments can be time-consuming.

By taking on a joint real estate investing venture with a partner, you can split the burden of any responsibilities such as paperwork, market updates research, landlord duties, or financial admin tasks.

This can free up both your time more than if you were to invest individually, as both partners have less of a workload between them.

Like running any kind of business with another person, having a real estate business managed by more than one person can make the process a lot easier overall.

Combined Skill-Sets and Expertise

While not every property investment strategy requires expert knowledge and prior experience, some real estate strategies like buy to sell (otherwise known as ‘property flipping’) benefit from some expertise.

Even strategies like buy to let require knowledge of the property market before getting started. If you don’t know the first thing about owning an investment property, you could run into some issues.

The good thing about buying an investment property with a partner is that even if one of you doesn’t know a particular area, the other person might be an expert.

Buying an investment property with a friend or loved one means you can combine your skills and expertise and put them to good use when embarking on your real estate journey.

Able to Grow a Portfolio More Quickly

When you have more money available to invest, you’re able to purchase properties much more quickly than you would if you had to spend time saving money.

This way, you can turn your investment venture into more of a business, and potentially even use the rental income as your main means of income. This is great for those nearing retirement age who still want an income besides their pension.

By buying a house with a friend in the UK, you can build a lucrative investment portfolio much faster, which is a welcomed benefit for those who want to see maximum rental income and capital growth returns as quickly as possible!

Potential Disputes and Fall Outs

If you are close with the person you’re thinking of buying property with, you may want to consider how your relationship could be affected by the property partnership.

Purchasing a property of any kind can be stressful, and you could find yourself in disputes with your partner over investment decisions. Investing in property with family only makes this worse, as arguments over the investment can follow you home and damage important relationships.

In a worst-case scenario, you and your real estate property partner could fall out, and you might have to exit the investment earlier than initially planned, which may be detrimental to your returns.

Credit Rating Checks for Both Applicants

If you and your property partner need to use a buy-to-let mortgage to fund your purchase, remember that both mortgage applicants will need to have a thorough credit check.

Both of your credit scores will be checked, and if one of you has a low score, you may struggle to secure a buy-to-let mortgage.

Therefore, it’s important when finding your partner to ensure your credit scores are both high when you begin looking to invest, as otherwise you will have a hard time.

Responsibility for the Entire Mortgage

An important thing to keep in mind is that when you buy property with a friend and use a buy-to-let mortgage to fund your purchase, you’ll both be liable as individuals to stay on top of mortgage payments.

Despite both your and your partner’s names being on the mortgage documents, you would be responsible for the entire mortgage if anything were to happen to your property partner.

It’s always a good idea to create a detailed financial plan for your real estate venture so that if this was to happen, both you and your partner would manage to pay without any issues.

Credit Rating Risks

Following on from the previous point, if you or your investment partner struggled to make a payment one month, your lender could report you to credit agencies.

This could mean that your credit rating would be affected despite having paid your share of mortgage payments on time every month.

Credit reports are vital if you hope to secure another mortgage further down the line, so this is a big risk to keep in mind.

Shared Returns

Unlike when owning a rental property of your own as a sole investor, buying a rental property in partnership with somebody else means you have to split the rental income and capital growth returns that come from the property.

This is a fairly obvious downside of setting up a partnership to buy property. You should really think about whether the shared investment returns you’ll receive are going to be enough for you.

You may decide that by investing in a lower-priced property on your own, you could generate returns that allow you to meet your financial goals more quickly than if you were to begin buying property as a group.

If you’re still thinking about investing in property with the help of a partner, keep the following tips in mind before you purchase your first investment property.

Find a Reliable Investment Partner

You may already have a suitable candidate in mind whom you’d like to invest in real estate with. If not, this is the stage when you would try to find one.

Make sure that whoever you choose as your property partner is reliable and shares the same investment goals as yourself. Make sure you discuss this honestly with your potential partner before you invest, to avoid any miscommunication.

This is not the time to phone up your flakey friend or family member that’s always late!

Make Sure You’re Both in a Strong Financial Situation

To avoid any financial distress further down the line, you need to ensure that whoever you choose to invest with is in a healthy financial position.

You want to make sure that even after you both have money invested into your property portfolio, you’re still financially stable and will be able to cope if the real estate market takes a turn for the worse and your property investment was to suffer.

Create a Solid Legal Agreement

Real estate is a serious business commitment. You and your property partner will need to have a legal agreement written up by a solicitor before you begin.

Make sure this agreement is as detailed and specific as possible and covers the main components of buying and running an investment property.

You will want to be as clear as possible, to avoid any legal issues or complications down the line.

Keep a Focus on Communication

Without communication between you and your real estate partner, your property investment venture is destined to fail.

Communication is crucial, and if you’re not constantly on the same page, you could run into trouble.

As investment partners, you need to keep communication consistent and discuss investment goals, business decisions, and general money matters clearly and frequently.

Invest in the Best Opportunities

Lastly, whether you’re buying a rental property on your own or investing in real estate with a partner, be sure to select investment opportunities that are actually going to generate significant rental income and returns from capital appreciation.

Look for real estate market hotspot properties and research average rental yields, tenant demand, and house price growth. Areas like Liverpool, Manchester and Birmingham are popular with investors thanks to their affordable prices and high rental yields.

When working with other investors, this research process should take half the amount of time, and you could find your perfect property in no time.