You’ve heard that real estate investing is one of the most proven ways to build wealth, but you’re a realist: You don’t have enough capital to finance a property investment…
Or do you?
Let’s paint a picture and see if it looks familiar: You’re on a beach vacation with a group of friends and you start to think about how great it would be to own a vacation home in this tropical locale. In town, you see a real estate agency and joke with your friends that you should all go in on a vacation house together.
But as you start to hash things out, you wonder if it has to be a joke. After all, together you could afford a way nicer beach house than you could ever get on your own. Using VRBO or AirBnB you could cover costs and create extra cash flow by renting the place out when none of your friends are using it. The more you think about it, the more brilliant it sounds. But there’s just one problem: You have no idea how to get started.
That’s where we come in! This post will outline the four steps necessary for making the dream of owning property with friends a reality.
Can You Buy Property with Friends?
You may be wondering, can a group of friends even buy property together? You’ve always been told not to mix money and relationships, so buying property with friends has to be a terrible idea… right?
Nope!
With the right systems in place, buying property with friends is a great way to access properties you couldn’t have afforded solo, and a fun way to enhance your relationships as you level up together.
Tribevest was founded on the belief that group investing is for everyone, but we know it can be overwhelming to take that leap. That’s why we’re here to help! Check out our guide below for the four essential steps you need to successfully buy property with friends.
1. Align Your Group
The first step to buying property with friends is finding a group of friends who want to buy property together. Sounds simple enough, but you’ll want to be strategic about who you include in this venture.
Find people in your social network that are like-minded and looking to level up in life. Chances are, you already have several friends or family members that fit this description, but if not it may be a sign that you’re not ready for group investing just yet. Consider expanding your network by joining local or digital investor clubs or wealth meetups.
Remember, buying property with the right group of friends is a great way to build wealth and relationships at the same time… but buying property with the wrong friends will likely just be a headache.
Excite Your Group
Once you’ve identified the people in your social circle you want to buy property with, start communicating with them about this venture. Begin an open discussion with the group to ensure all parties are not only interested in the opportunity, but excited about it.
Taking the time to align upfront and ensure that everyone is interested and committed to the same degree will save you trouble down the road.
Related: Check out our Tribe Stories for more tips!
Make A Plan
The last step to aligning your group is to make a plan. Creating your plan is a great way to establish that your group is organized and serious about the investment opportunity at hand. Basically, this is the step where your friend group moves from “just talking about it” to actually making it happen.
Wondering what is required? To start, some elements you should include in your plan are:
- Group Name: What is your investment group called? Naming your group helps you start viewing it as a business opportunity rather than just a “dreaming out loud” exercise with friends.
- Group Goals: Set up your expectations for the group. Is this a one-purchase-only group, or do you want to buy additional properties together down the line?
- Mission: What does success look like for your group? Laying out your mission ensures that all group members are looking to accomplish the same thing.
- Rules: Establishing rules upfront is essential to ensure your group runs smoothly. What are the voting processes for decision-making in the group? What happens if someone decides they want to leave the group? Setting up and agreeing upon rules early on will help you and your friends invest together without damaging your relationship.
- Financial Specifics: How much capital is each group member investing in this property? Setting that dollar amount upfront ensures that every member of your group knows their financial commitment early on, preventing conflict on this point later.
- Timeline: How soon do you want to purchase your property? Do your friends agree? If one member of the group is thinking in months and another is thinking in weeks, you may have some conflict. Ensure everyone has realistic and aligned expectations about how fast or slow your group will move on purchasing your property.
If this sounds overwhelming, don’t worry! Chances are, this is all information you already have in your head. Getting it out in the open and down on paper can happen in a single group conversation.
2. Form Your Partnership
Your group is aligned and ready to go. Perfect! You’re ready to move on to step two: Making things official.
Step two is where you take your like-minded, investment-ready friend group and turn them into a formal business entity.
Formalize Business Processes
You created a plan, rules, and mission statement in step one. Now, it’s time to formalize that information into an Operating Agreement. Your Operating Agreement is a document that formalizes how your group runs. Basically, it’s an agreement between all members of the group laying out expectations for internal group operations.
With your Operating Agreement in hand, you’re ready to create your business entity! What entity type is best for your group? There are five entity types, sole proprietorship, partnership, C corporation, S corporation, and limited liability company (LLC). Chances are, an LLC will be the best fit for your group.
To run your group effectively and compliantly, you will need to set up the following:
- File your LLC with the appropriate filing State
Every state has different requirements and costs for LLC filing, so choose your LLC filing state carefully. Note: you’ll need an in-state address for the state in which you are filing.
- Get an EIN (Tax ID) number from the IRS
Your new business entity will be required to pay taxes, which means you need a tax ID number from the IRS to operate. You can apply for your EIN for free on www.sba.gov.
- Apply for a business bank account
One key to ensuring your business relationship doesn’t have a negative impact on your personal relationship with your friend group is setting up a business bank account. This step ensures that everyone in the group feels like an equal participant, and provides a formalized, centralized place for all group capital to reside.
One note of caution: If your bank isn’t used to working with Investor Groups or Multi-membered partnerships this can be a huge frustration and set you back, so ensure you’re selecting your bank carefully!
If these steps feel overwhelming, don’t worry! You can accomplish all of these things easily using Tribevest’s standardized process. When you use Tribevest, we’ll walk you through every step of the way—and we’ll cover your LLC filing fees!
Once your business entity is set up, you’re ready to get to the part you’ve been waiting for—investing!
3. Purchase Property Together
Step three of purchasing property together is, you guessed it, purchasing property together! With your business entity set up and your group aligned, you’re ready to start hunting for the perfect property.
Find the Perfect Deal
When you and your group begin your property search, you’ll want to keep a few things in mind. First and foremost, you’ll need to consider the price. Ensure you’re only considering properties that are in line with the capital contributions you laid out in step one. Pressuring the group into overspending is a surefire way to start conflict and make group members feel like they’ve been duped into spending more than they had planned.
Next, you’ll want to ensure you’re considering your plans for the property when making your purchase. Is it located in a desirable area? If your plan is to rent it out online, check out how much similar properties in the area are going for on Airbnb or VRBO. If you’re planning to purchase a long-term, single-family rental property, you may want to consider things like the surrounding school districts.
Essentially, the goal here is to spend less upfront and make as much as possible on the back end. Don’t be afraid to start a little smaller with your first group investment property —after all, once it’s cash-flowing you can reinvest the profits into an even bigger second deal.
Pool Your Capital and Make Your Purchase
Once you’ve found the right property at the right price, the only thing that stands between your friend group and property ownership is to pool your resources and pull the trigger! Set a deadline for each group member to transfer their funds to the business bank account you set up in step two.
Pro Tip: You can get ahead of the game by completing this step before you find the right property! Then, when you find the perfect deal you can buy right away!
"The greatest losses of all are those from missed opportunities."
-Robert Kiyosaki
4. Manage Your Partnership
Since our goal was to buy property with friends, it might seem confusing that there is a step after you’ve made your purchase. We don’t see the initial purchase as the end of your journey—we see it as just the beginning!
You and your friends may want to use your business entity to make future investments together, but even if your group is looking for a one-and-done investment, there is still work to be done after the initial purchase.
Communication
Remember how we aligned our group in step one? A big part of ensuring your group real estate investing venture is successful is keeping your group aligned. Even after the purchase is made, you will need to make decisions together regarding the property. Keep lines of communication open and ensure all parties are involved and included in voting and decision-making processes.
You should also ensure you have an established process for group members who wish to exit the opportunity. Investing together can bring your relationship closer, but if you’re forcing someone to hang onto an investment they’d rather sell, you run the risk of driving a wedge between you.
Some of the nitty-gritty details of managing communication in your group include:
- Logging voting records and decisions
- Ledger management
- Updating group members with activity reports
- Setting up a process to share banking and investment statements
Legal & Tax Requirements
The other piece of the puzzle when it comes to managing your partnership is ensuring you are keeping your business entity up-to-date with all legal and tax requirements.
You’ll want to keep tabs on any updates in your filing state that affect your business entity. Additionally, you’ll need to file an annual report with your state each year and send tax documents to each group member. The leader or founder of the group should take on this responsibility on behalf of the group.
Buying Property with Friends: Your Key for Building Wealth
You and your friends are only four steps away from owning that vacation property you’ve always talked about. So what are you waiting for? As long as you gather the right group and take the right steps to ensure your ducks are in a row, both legally and interpersonally, you can level up your net worth together without damaging your friendship.
If you’re feeling overwhelmed by the process of setting up your investing group, you’re not alone. Most friend groups stay stuck in the “dreaming” phase when it comes to investing in property together. Tribevest arms you with the tools and functionality you need to take that dream and make it into a reality.
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