Buying property jointly with friends

[burryumy]

I'm new to the forum so apologies if a similar topic has been discussed previously or is in the wrong place.

Some friends and I have been discussing the idea of collectively buying a property as an investment and renting it out. For personal reasons, we all want to invest in a property but want to avoid taking out mortgage financing. The only way we can thefore afford to invest in a property (in London) is if we do it collectively and share the costs and rental income.

The idea is that, say 5 of us would each invest 40k and buy a property for 200k including costs. We would rent it out and each of us would recieve 20% of the rental income (and share 20% of any ongoing costs). We understand the yield will not be fantastic as we will not be using any financial leverage but the idea is to generate a long term stable income.

I've describe the idea briefly above but there are a lot of practicalites to think about and I would be very grateful if anyone could provide their thoughts/advice. Particluarly if anyone has experience or knowledge of buying property jointly with one or more people I would be grateful for their experiences. Also, I would be interested to know what the legal process is of buying a property jointly with others and are there any issues we should be aware of?

Many thanks in advance

[Richlist]

We would rent it out and each of us would recieve 20% of the rental income (and share 20% of any ongoing costs). We understand the yield will not be fantastic as we will not be using any financial leverage but the idea is to generate a long term stable income.

I can understand that you are looking for long term and a stable income but have you thought that your collective investmnt might just provide you all with a long term, stable but LOW income ?

Property IS not the investment it was nor is it likely to be in the next few years.

You might consider forming a limited liability company and using that to purchase the property.....there are likely to be tax advantages........your gonna need them with no mortgage interest to offset against profits. The company can pay you with dividends......see an acccountant for more details.

DON'T assume that historical property price increases will translate into future profits.

[Melboy]

I have a simple answer..........Don't do it!

Too complicated.... will eventually lead to falling out with one another. Like all shared property investment/rental deals and ideas like this they sound great initially but are normally doomed to failure over a period of time.

Mel.

[Carryon Regardless]

I'm with Mel on this.

With experience in the field there are many scenarios where no prior understanding / agreement will be considered to prevent disagreement in the event.

Now without experience those scenarios are many more.

[bdh198]

I've bought with friends and family in the past, but only properties that we bought initially as a development project with the intention that once we had completed the development work I would take a mortgage out in my own name and use the loan to buy the other co-owners out and then let the property myself. In that situation there was a common goal and clear exit we could all work on together. Running the letting side of the business with co-owners is something I have never done with more than one co-owner (friend not family). In that situation we have a common goal so it works, and we have a plan if one of us ever needs to sell, but I thought long and hard before letting as a co-owner and it's not something I will be looking to do again.

Letting a property with five co-owners seems an extremely risky venture especially if none of you have any previous experience of letting properties. However, if you're serious about giving it a go then a much safer option might be to get together with just one other person (the one who has shares most closely your ideas about how you want to run the business) and take out a mortgage - I don't know your personal circumstances regarding a mortgage, but there are some good deals out there at the moment and you'll be eligible for some of the best with a 60% loan to value (£80,000 equity on a £200,000 purchase). I suspect you might even get a better return even after deducting the mortgage costs from your rental income than if you had divided it by 5.

Good luck

[Guest tenants_from_hell]

Depending on which area of London we say its a 5 bedroom house £400 per room = £2000 per month so your share is that £400.

Is it worth spending £40,000 to make £400 a month? You will make £5000 per year roughly HOWEVER if there are periods where your house is empty then you wont make that.

Futhermore, as others have said business and friendship simply dont mix. I know someone whose mate is a letting agent however the relationship of business is simply crap and the agent abuses this.

It wont work, furthermore the most important thing is which I cant emphasise enough, is that its not 1 partner but you will have 5 partners in total including yourself. So agreeing to a decision will be very, very difficult and this is where the above will occur.

Also think 10 years ahead, what if you want to buy the others out and they dont agree to this? And vice versa?

Finally, if you all agree one person should do the managing and letting whilst 4 of you are silent partners, then the manager might want more money (no one does anything for free) which you guys wont agree to...

[burryumy]

Thanks for all your replies - the discussion certainly provided a lot of food for though. The economic factors and risks of low returns are something that one would need to get comfortable with regards to any property investment and I don't see this as the key issue. The main issue for me, as highlighted in the discussion, is the difficulty in maintaining a consensus and aligning goals in the long term given the number of parties involved. I still think the idea of co-buying could work but with perhaps only one other co-investor involved. I agree that with more than 2 investors there is a real risk for things getting quite messy.

As mentioned by Solent, one could also buy a property jointly with the aim of developing it and selling rather than letting it out. This involves a defined timescale and exit strategy and if the common goals and sharing or responsibilities are agreed in advance, the risk of falling out is somewhat mitigated. This is another option we are considering, but would obviously involve a much more hands on approach compared with the buy to let scenario.