I have worked with many investors over the past 16+ years. Sometimes I i was asked Two or more people pool their resources to purchase property. this Can work, but there’s a potential pitfall: assumptions.
For example, suppose two friends decide to pool their resources and invest together. They’ve known each other for years, so there’s no problem expected.
A few months later, the refrigerator on one of their properties broke and one of the partners wanted to install a second-hand one to save money. Another wanted to install a new refrigerator with a warranty. While this may seem trivial, I’ve seen friends argue less.
What should be included in the agreement
How can we minimize such problems in the future? By writing and signing an agreement that covers as many potential issues as possible.
I’m not a lawyer, but here are some of the provisions I’ve seen in partnership agreements.
Owners’ equity
Clearly specify each party’s percentage ownership of the property. Usually, this based on About the proportion down paymentmortgage payments and other expenses borne by each party.
Financing details
Define who will pay for what. this include mortgagewho will named About your mortgage and how you will allocate your mortgage payments. Also define how acquisition costs will be divided, such as down payment, renovations and closing costs.
Payment liability
Define how regular expenses such as mortgage, property taxes, insurance, homeowners association dues (if applicable), and maintenance fees will be allocated and paid.
Management and maintenance
Agree on how property maintenance, repairs and improvements will be handled, including decision-making processes, funding for such activities and responsibilities for performing or managing the work.
single decision point
As mentioned, I’ve seen situations where one person agrees to replace the device and the other strongly disagrees. As a result, the tenant was left without a refrigerator for several days and refused to pay rent. This kind of indecision is detrimental to running a business. One person needs to make the final decision.
Dispute Resolution
Define and agree on methods of resolving disputes that may arise, such as mediation or arbitration, to avoid litigation.
Marital status changes
What happens to ownership if one party gets married? it is important Address this issue ahead of time.
succession
Define what happens if one of the owners dies or gets divorced, etc.
exit strategy
include Regulation What happens if one party wants to sell their interest in the property. this It may involve the other party’s right of first refusal, buyout terms, and the method of determining the sales price.
Rental and use
The rules that define a rental property or portion thereof, including how income and expenses are Divided. Also, how about agreeing The property will be usedwho can live there and under what conditions.
Donation reconciliation
Implement a process to deal with situations where a party is unable to meet its financial obligations or there is a material discrepancy in fee payments.
Legal and professional fees
Decide how to divide the legal fees and other professional fees associated with purchasing and managing the property.
Signatures and legal advice
All parties must sign the agreement, and all parties suggestion Seek independent legal advice to fully understand your rights and obligations under the agreement.
final thoughts
The time you spend crafting an agreement may save you a friendship and potential legal fees. Take the time to make sure you cover these points.
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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
