Real estate investor partners: Is your word good enough?

With prices appreciating, and loan rates and inventory low, there is an increased willingness to own real property by two or more investors who need to combine their capital and/or credit to participate in buying, and flipping or renting the property.  Often, the investors’ focus is on selecting the property or raising the down payment, with little or no consideration for what happens if co-owners disagree, one wants  out, or the optimistic expectations are not realized.

A popular formula in the current flipping frenzy is for one investor to obtain the loan because of a superior credit rating and taking title, while the silent investor contributes funds for the down payment, and perhaps occupies the property as a de facto tenant paying “rent” as the monthly mortgage payment, and sharing the insurance, taxes, and other costs of the property.  This allows the purchase and investment by investors who could not otherwise participate by themselves, and increases the number of players in the market.

Many times such arrangements are done orally, with a handshake, and disputes and disagreements are inevitable because of the normal instinct to recall the “deal points” in a manner that is favorable to the separate perspectives of the investors.  If they cannot confirm their deal points at the inception of the arrangement, they will not be able to after they begin to view the transaction, in hindsight, from their own self-interest.

Getting it in writing may save investor partners a whole lot of grief.