Buying a House With Friends and Other Strangers

9 01 2008

Dear Alex: Me and my friend (not romantically involved) want to buy a house together, fix it up and rent most of it out. My father says never to do business with friends, but I don’t know how else I could afford to buy something. Any advice?

Gotta Invest

Dear GI,

Buying and renovating a property is a huge undertaking — it tests the mettle of any relationship; friend, family, partner, or spouse. I know so many stories that have ended in disaster from lack of forward planning.

My advice — treat it as a business transaction with a stranger. And plan ahead if the partnership were to break up.

If you and your friend are truly serious, meet with a lawyer and discuss responsibilities and all scenarios: Are you both managing the renovation and management of the property equally? If not, how should you split the income? What happens if one of you gets married and moves? Or dies? What is the buyout clause if you call it quits? What happens when the contractor disappears? What happens when the renters don’t pay?

Basically, it’s like planning your will, pre-nup, and divorce, before you even start. If your friend says, “Oh, we don’t have to do that. We’re friends.” Walk away. You’ll have another opportunity.

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