You remember that perfect cottage property you saw the last time you visited your favorite hill station? It had a fantastic lawn, an incredible view, and even a beautiful wooden patio out back. Basically, it was the perfect place. You could envision yourself having many fun-filled evenings with friends and loved ones out here. You’d set up the barbeque table right there, and have a nice sound system installed. Hey, you’d even have a projector set up so you could watch movies, while you were reclining in your lawn.
But there was a catch – the damn thing was too expensive. There was no way you could buy it on your own. But maybe if a couple of your friends pitched in? Yes, then it could happen. You could own this place. Instead of staring longingly at it every time you walked by, you could have a key and walk right in.
Sound good? I know it does.
However, there’s a catch with this scenario (you knew there was going to be one). That is, people don’t always agree with each other when it comes to tremendous financial investments. And even the best of friendships can be put to the test when it comes to spending a large amount of money over an extended period of time. Let’s look at some things you can do to ensure your cool beer buddy doesn’t turn into your sworn enemy once you buy a house together.
• What are you buying this particular property for?
Before you sign on the rather large dotted line, you and whoever else you are buying the house with needs to clear things upfront. Are you going to rent out the property? Use it as a vacation home? Wait till the real estate prices rise and then flip it for a cool profit?
Whatever it is you use to intend the property for, make sure you and all the other parties involved are on the same page before you make any buying decisions. If you are going to be paying the EMI on a property for a long period of time, you need to know every one of your co-buyers has similar intentions for the place.
• Put your dream scenario aside for a moment, and think long-term strategy.
I know, the scenario I described does sound awesome. But let’s take a step back for a moment and think about what the purchase actually means for all parties involved. If you are purchasing the property as a vacation home, you need to make sure there is a legal, binding agreement drawn up that describes exactly how and when each of the parties get to use it as such. If one of the people is putting in more money, they might want a larger time-share on the property, for example. Plus, there is the matter of maintenance, utility and repair costs. Make sure none of these important issues are doused in ambiguity before you proceed.
• If you have the money to, set up an LLC for your purchase.
LLCs aren’t complicated legal dinosaurs that are out to get you. They are there to protect purchases of this kind. If, god forbid, something untoward should happen to you or one of your partners down the line, you need to have some sort of insurance. If you don’t want to end up dragging each other to court because one of you didn’t pay an instalment on time or something of that sort, set up an LLC.
• Consider how you can bail if you aren’t interested any more or the purchase isn’t viable for you.
So, as mentioned before, you need to make sure you have some sort of a strategy in place in case something bad happens. If you want to sell your share, or your partner wants to sell shares, how do you go about it? How do you evaluate how much your share is worth if you sell it say 5 years after you purchased? What legalese is going to be involved in such a scenario?
Make sure you have thought about how you can walk away, before you buy in.
So, consider this a cautionary tale. We would all love to have a big house where all of our best friends or family can come and stay on the weekends and have fun together. However, sometimes business gets in the way of relationships. When such circumstances arise, you need to know how to handle them. Or, you know, you could just wait for a few years, work hard, earn a lot of money and buy the entire thing yourself. Choose wisely.