Some people have interest in going into real estate market for investment, but they are incapacitated by insufficient financial resources. As an alternative, they are forced into entering into some sort of partnership with a friend, sibling or business partner. But while this sort of arrangement has their benefits, they also come with drawbacks. Here are five risks you will have to manage when buying property with a business partner.
1. Financial issues
You will likely agree with me that money is often at the base of most problems. Issues could arise when it comes to working out finances between the co-owners. In addition, one of the partners may be very prudent in his or her finances better than the other. The partner who is less financially responsible constitutes serious threat to the partnership. Arrangements must therefore be put in place beforehand to tackle this problem.
2. Difficulty in securing loans
Buying property with a business partner has the tendency to greatly limit your ability to secure loans. Let’s say both of you took out a loan to buy the property, with each one having equal liability. This will make it quite difficult in the future if you wish to get a loan to buy another property for yourself. This is because the lender will likely assess you as being wholly responsible for the initial loan. You need to discuss ahead of time how long you wish to hold the property.
3. Disagreement
The best of friends even do have a disagreements every once in a while. You may have also have disagreements with your business partner. If these are allowed to get out of hand, it could result in one partner wanting out when the other party is not ready. Before buying the property, you need to have a frank discussion with your partner on what will happen when one of you desires to sell off early. It pays to deal with someone who will not consider early sell up as the solution to a slight disagreement.
4. Death of partner
Problem could also arise at the death of a co-owner. Ordinarily, their share of the property should pass on to their beneficiaries. But as a surviving partner, you will be liable for the full repayment of any debt owed. You might want to include a clause in the deed that will enable you buy out the property, if beneficiaries won’t be responsible for the debt.
5. Unforeseen maintenance costs
The initial cost of buying a property is not all there is to be paid. There are still maintenance costs to be paid, some of which may be unforeseen. For example, cost of repairs after typhoon damage. Insurance will be helpful to have.
