Investing in Real Estate With Friends

by Luke Arthur ; Updated July 27, 2017

Investing in real estate can be an effective way to take advantage of capital appreciation and create passive income. When you want to invest in real estate, partnering up with your friends can be an effective way to increase your buying power and get into deals that you could not otherwise pursue.

Increasing Capital

One of the primary reasons that you may want to partner with your friends to invest in real estate is so that you can increase your investment capital. When you invest by yourself, you only have so much money that you can put into a property. You can also only qualify for a certain amount of money through a property loan. When you set up a partnership with your friends or family members, you can increase the amount of money for which you qualify, which helps you buy bigger properties or more of them.

Finding Investors

When you decide that you wish to pursue a real estate investment opportunity with friends, you need to find out who is willing to invest with you. You could try to start a real estate investment club or you could simply talk about an informal agreement with a friend. Regardless of which avenue you choose to pursue, you need to find out if any of your friends are even interested in this opportunity before moving forward. Find out how much money they have to invest and what their investment interests are.

Investment Criteria

When you find friends to invest with, you need to set some criteria for your investment partnership. This should be done on a formal document in which you outline the individual features of the agreement. For example, you need to outline the objectives of the investment group. You can specify the types of properties in which you want to invest as well as how much each person should contribute to the group.

Legal Entity

When setting up a partnership with your friends, you may wish to create a legal entity for your business actions. For example, many people in this situation set up a limited liability company, or LLC, to run their real estate business deals through. This way, if anything happens with one of the deals, the individuals cannot be held personally responsible for the debt. If someone sues the group, none of the individual members can be held responsible.

About the Author

Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.