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A couple of unrelated friends and I are interested in buying a condo and splitting it three ways. We will be using it interchangeably as a rental property as well as living in it ourselves sometimes. We were thinking of just doing a percentage based ownership of the property based on what each of us have paid in at any given time since we have different down payment amounts and may contribute different amounts in monthly payments as well.

Two of us already own homes as well individually.

Any tips on how accomplish this and where to start are needed and welcome please. Do we have to start an LLC or anything like that?

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    You don't have to but you absolutely should form a formal partnership or LLC ESPECIALLY if you are planning on renting the place at all... – quid Nov 22 '16 at 20:03
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    Why are so many people so very reluctant to volunteer information about the legislation they are subject to, especially in questions which quite clearly must be legislation-subjective? – I'm with Monica Nov 23 '16 at 9:44
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    "where to start" Discuss your case with a professional? This is such a complicated and individual situation that I'm not sure it's answerable on a Q&A site. (Grade is actually answering "What should I be aware of before buying a property with shared ownership?"). – Lilienthal Nov 23 '16 at 11:31
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    "Just don't" would be my best suggestion....Buy an REIT instead. – Crisfole Nov 23 '16 at 16:05
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    Remember, each of you will have to be on the mortgages and will be joint and severally liable for the mortgage payment. Rarely will a bank agree to only have an LLC on the mortgage at this scale. Sounds like a recipe for losing friends and money. – doug Nov 24 '16 at 5:14
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Get everything in writing. That includes ownership %, money in, money out, who is allowed to use the place, how much they need to pay the other partners, who pays for repairs, whether to provide 'friends and family' discounts, who is allowed to sell, what happens if someone dies, how is the mortgage set up, what to do if one of you becomes delinquent, etc. etc. etc.

Money and friends don't mix. And that's mostly because people have different ideas in their head about what 'fair' means. Anything you don't have in writing, if it comes up in a disagreement, could cause a friendship-ending fight. Even if you are able to agree on every term and condition under the sun, there's still a problem - what if 5 years from now, someone decides that a certain clause isn't fair?

Imagine one of you needs to move into the condo because your primary residence was pulled out from under you. They crash at the condo because they have no where else to go. You try to demand payment, but they lost their job. The agreement might say "you must pay the partnership if you use the condo personally, at the standard monthly rate * # of days". But what is the penalty clause - is everything under penalty of eviction, and forced sale of the condo and distribution of profits? Following through on such a penalty means the friendship would be over. You would feel guilty about doing it, and also about not doing it [at the same time, your other partner loses their job, and can't make 1/3rd of the mortgage payments anymore! They need the rent or the bank will foreclose on their house!] etc etc etc

Even things like maintenance - are the 3 of you going to do it yourselves? Labour distributed how? Will anyone get a management fee? What about a referral fee for a new renter?

Once you've thought of all possible circumstances and rules, and drafted it in writing, go talk to a lawyer, and maybe an accountant. There will be many things you won't have considered yet, and paying a few grand today will save you money and friends in the future.

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    Excellent answer. Just want to add that OP should create an LLC / LLP to protect themselves against lawsuits. Also on the money out question - if one of your partners gets divorced their spouse will have a claim on his/her portion of the partnership. If your partner is forced to sell, you might want to stipulate that the rest of the partners get first pick. – ventsyv Nov 22 '16 at 23:06
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    Good answer. This "arrangement" being entered into will survive or fall on the basis of what the parties agree to before it takes effect. There's a tendency (maybe not with the OP) to believe that details can be worked out later. Disastrous. – gef05 Nov 22 '16 at 23:25
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    One of the most important things to get in writing is how to resolve disputes. A venture like this can bring friends closer together (who doesn't like making money?) but it can turn sour quickly. What happens if two people want exclusive use the same weekend? What happens if two people want to rent to different lucrative clients? If I damage it on my weekend, how much is your share to fix it back up? Make it fair before a penny is paid anywhere. I've seen friends lost of 20 bucks before, imagine over 200k?! – corsiKa Nov 23 '16 at 18:34
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I would second the advice to not do this. Real estate ownership is complex to begin with, involving a constant stream of maintenance, financing, and other decisions.

It is difficult enough to do for a single individual or a family as a unit (a couple), but at least spouses are forced to compromise. Friends are not, and you can end up with long-running conflicts and impasses. Financial transactions of any kind impose tensions on relationships, and friendships are no exception. If you want your friendship to survivie, do not sacrifice it to the financial arrangement which seems like a good idea at the moment.

My advice would be to steer clear, no matter how attractive on the surface the deal might look. Focus on your own individual finances and use discipline and patience to save the amount needed for acquiring a separate investment property. But it will be 100% yours, and will save tons of headache. Since you are still considering this deal, it's a great time to politely change your mind and walk away - believe me, a few minutes of inconvenience will save you years of frustration. Good luck!

  • ...unless his friends get mad for him walking away and making it impossible for them to buy it. =/ – jpmc26 Nov 23 '16 at 23:35
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    @jpmc26 If the OP's friends get mad for walking away from this venture (ie: they have conflated business reasoning with friendship), those are the very types of friends the OP should not be in business with. Linking financial risk with emotional obligation leads to poor decision making. This is exactly why one should keep their business and their friends separate. – Grade 'Eh' Bacon Nov 24 '16 at 15:05
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    @jpmc26 Thank you for pointing this out. This is indeed a risk, but the savings of risk associated with doing business with friends is significantly greater. It is much easier to forgive someone for something they did (or did not do) before it costs anyone any money, than afterwards. – A.S Nov 24 '16 at 19:02
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    @Grade'Eh'Bacon (and Aymor) Agreed, of course. It's just worth being aware that the situation may have already gone far enough to cause some damage and that there may be social pressure to continue. Still better to get out now, especially if that's the case. – jpmc26 Nov 25 '16 at 6:36

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