THINKING OF BUYING A HOUSE WITH FRIENDS? HERE’S 3 QUESTIONS TO ASK YOURSELF FIRST.
Are you and some friends or family members looking to buy property together? No matter if you’re looking for a vacation home in the mountains or a family home in the South Bay, when buying real estate with friends or family, there are some things you might want to consider.
Before you sign your names on the dotted line, here are 3 things you should ask before you purchase a property.
WILL YOU BUY OR RENT?
The first thing you should consider before you start searching for properties together is to determine whether your group is looking to buy a property or to rent one.
In the case that you are buying a vacation home, there could be many benefits of renting the property, as it will not be used for a majority of the year. While you are not using the home, your shared property can be rented out. This can provide you with the benefit of generating more income. If you decide that renting is a better option for your group, be sure that the area you are renting the home in allows for this.
If you are looking to make an investment together, buying a house might be more beneficial.
WHICH IS BETTER FOR YOUR RELATIONSHIP—TIC OR LLC?
Buying a property with two or more parties that are not relatives or married can get a bit tricky. There are two ways that you can go about doing so. Setting up a tenancy in common (TIC) allows two or more parties to simultaneously own a property, while still being seen as an individual. This ownership gives individuals a choice in the way that the responsibilities of a property will be carried out, and each person that owns the property is considered a co-owner.
With an LLC, you are still seen as individuals in the buying process, but get the benefits of a corporate liability shield. Although this option might cost a bit more and take longer to set up, it can provide you and your group with more security and keep the responsibilities a bit more equal.
WHO WILL BE RESPONSIBLE FOR WHAT?
After you have determined whether an LLC or TIC is more beneficial for your group, it’s now time to nail down the details. If your group decided on a TIC, this will have to be completed amongst yourselves, while with an LLC, this will be determined in front of a lawyer.
With an LLC, this will hold everyone legally accountable for their responsibilities, while the lines could be blurred with a TIC. When emotions are involved, narrowing down the details can be a daunting process.
OVERALL BENEFITS OF BUYING REAL ESTATE WITH FRIENDS
Buying a house with your friends can have many great benefits. Before diving head first into buying real estate with your closest friends, be sure to ask yourself the above questions. By answering these questions, you’ll be able to fully enjoy your new, shared property without confusion, hassles, or hesitations.