Pros & Cons of buying property as a group of friends/family

Absolutely.... stay clear of this

 

It could work if
- no mortgage
- shorter time frame (eg: develop, sell & move on to next)
more like a business partnership rather than an investment partnership.

 

I feel obliged every time this post is raised (every 6 months).
It can absolutely be a great strategy to combine savings/equity and borrowing capacity with family/friends to create wealth via property.

However it is an absolute must to have a very defined and detailed exit strategy. What that means is it should only ever be done with a finite time meaning it really only works well with a development project with say a 1-3 year timeframe. Anything outside of that and your asking for trouble.

Some people will comment without having done this because I agree on the surface it sounds like a terrible idea. I have however experience in this having developed with a family member and made a significant amount of money. I also did the entire project myself without any knowledge. Point being I would be twice as efficient delivering a development project now.

However at the time we had no commitments and money available. Now im married with a child and a mortgage. My brother who I did this with is also married with a child and a mortgage.

So in a nutshell, if the timing is right, if the strategy is right and if the exit strategy most importantly is right then it can be very profitable and give you access to something you would have zero chance doing yourself.

 

Fully agree with what the other posters have been saying. I have an example for you. I know someone who pooled in money with their mates and sat on a big block of land in Eynesbury, zoning changed and now those people have paid off homes in Ivanhoe, Eltham and a couple other blue chip areas. If the plan's there and you pull it off, it's fantastic. On the flip side, it could fall flat too. Diligence and all..

 

Great Example!
TBH if one of my mates had any sought of nous and proposed this to me when I was young I probably would have done the same.

It’s far better than the alternative being spend every last spare cent I had.

Again these posts need far more context for anyone to answer soundly. The immediate response is stay away but it really shouldn’t be.
I’ve actually heard more success stories than failures. But the failures cost more than money.

 

It is for this reason alone, that I'd stay away.

I've heard of both success & failure, but to me the risks are too high. Great if it works for you.

 

So you are willing to go to court to enforce these clauses?

Against your friends and family?

Why look to put yourself in such a situation?

 

Timing for these sort of high risk projects needs to be spot on.

Me too, more success than failures, and resounding success too. I know someone (a little bit too well) that bought acres of land in Tarneit well before the big boom started a few years ago. The guy now rolls in Aventadors and Bentleys. He wasn't well heeled to begin with either, couldn't afford a car in the early 2000's. He times his projects very well.

 

And some people just get lucky due to a lifestyle choice.
A mate of mines parents lived in Taylor’s Hill when it didn’t exist. Keep going down Taylor’s Rd until it turned into a gravel track and then high beams for a while before going into there place. It wasn’t land banking, they just liked the quiet but still not being totally in the sticks.
In the end the pressure to sell to developers for millions upon millions was too luring.
Still sit on probably 10mil+ of land.

 

Jeepers!

 

Could you do something like use someone as an investing partner for a % stake in the property?

Partner offers $100K for X% stake. But maybe this is the same?
I have thought of this in terms of development.
I have a 600K property, own say 40%. Use a business partner to fund construction of series of townhouses. They put money down, the plan is drawn up, town houses are sold, they get their cut.

 

I just don't see that much benefit in most normal situations. If you knew what you were doing with the project, you would get the money some other way - high interest private lending maybe.

If you don't really know what you're doing, then what's in it for your business partner?

But at least a development that gets sold off at the end is a joint venture that you get in and out of quickly.

Honestly adding a "business partner" into the mix as a beginner level developer is just asking for extra trouble.