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.
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.