Income Rental Property investment with good friend?

[Dumbass17]

Hey,

Just looking for advice/thoughts here.

Quick Background info:

Me - 31, serious girlfriend, never owned a house/always a renter. Steady job as a civil technologist.

Friend - 31, just got engaged. He has owned 2 properties (at different times) and renovated both and turned them each for a profit. Currently, owns 1 property in Vernon that he rents out. He lives in Calgary again with his fiance. He is the type of person who does not want to work but will if he has too. He's smart with money and knows his stuff when it comes to buying/selling/renting/renovating properties and I trust him completely.

Anyways,
He called me tonight saying he has found a house in Kelowna that he'd like to pick up. He has the down payment ready but he would not get approved for a mortgage as he doesn't technically have a "real" job (he started with a new company beginning of this week but it's a bullshit job). That's where I come in.
I am steadily employed and have been pretty fortunate with always finding work.

Blah blah blah. He suggested that he could supply the down payment, I would be the owner on paper and we could work out a contract that we each would get X% of the profit provided by the rental income after all expenses are paid.

With that being said, what are your comments, thoughts, suggestions, warnings for this if I was to go ahead and pursue this?

[93VR6]

If you trust him and can come to agreeable terms, I don't see why not.

Although my gut instinct says no fuckin' way.

[Xtrema]

Unless you are paying a 3rd party (unrelated to both of you and unbias) to manage to place, don't bother. 9 out of 10 he will be a manager and will charge the company a management fee. Or do whatever he deem necessary to fix the place and charge you market or over market for these services. So he will cash out immediately and you are left with the risk and almost 0 profit.

He's smart with money and knows his stuff when it comes to buying/selling/renting/renovating properties and I trust him completely.

So did he get burnt on one of the outings? People who do well like you said, usually doesn't need help unless they are already over leveraged. If he already own a home, and 2 before that, how come he's denied on this one and need your help?

Also, as you never owned a house, you also lose First Time buyer program when you (and your GF) want to buy your 1st home.

I see all negatives here. Unless he plans to do a quick flip (3 months or less) and give you 50% of the profit, I won't bother.

[MrSector9]

there is 2 outcomes and you need to decide what it is worth to you.

1. you lose money and a friend
2. you gain money and maintain a friend


Since it is your credit/name on mortgage what would your plan be if the house is not rented and your "friend" disappears when it comes time to pay the mortgage/repairs/damage by tenants/cost to rent unit? Do you have the financial abilities to take this on yourself?

[Sal0]

You could be getting taken for a ride... this is a very common mortgage scam. I would highly recommend that you look this up.

Here is a good link which is an easy read.
http://www.servicealberta.gov.ab.ca/...gage_fraud.pdf

[kaput]

.

[gwill]

Xtrema is out to lunch on his comments. A friend of mine did this with a friend and had a lawyer draw up the papers that discussed any and all scenarios that could happen with the property. His friend owned 3 properties already and couldn't get approved just like this scenario so now my friend has been earning equity on a property he never put any money into.

I think mrsector hit the main issue head on. If it's an expensive house what happens if you need to carry the mortgage and do you have money saved up for repairs? Paying a lawyer to draw up a contract that favours you should be pretty simple and should address this scenario.

In my friends case he lived in the same city as the property he put under his name. When it came to doing repairs and finding tenants it worked out easy for him.

If it was me I would dive right in as long as a proper contract is done up by a lawyer of my choosing.

[kaput]

.

[dirtsniffer]

I would want to make sure that his down payment was big enough to allow me to fire sale the place and be able to cover the mortgage if he screws off.

An agreement won't protect you if you are breaking laws.

[Mista Bob]

Why take all the risk and then share the profit? If this is something you want to do, do it on your own. Otherwise don't bother.

[Cos]

.

[Feruk]

I wrote a response disagreeing with everyone, but thought about it a little more...

The risk I see is his lack of having a "real job." On just this factor, anything below a 20% down payment would make me question involvement. Also, do you gain equity in the house, or just a share of any positive cash flow? If it's the latter only, do NOT bother. Most places purchased today don't cash flow positive, and there is an increased risk of rents going lower considering the amount of Kelowna owned by Calgarians. Also some fair comments from Xtreme about a management fee, so you'll need a thorough contract that discusses this.

If you and your buddy were 50/50 partners and both put down 50% DD and were both on mortgage, that'd be one thing. This kinda gives me the jitters.

[OU812]

Fortune favors the bold.

[HiTempguy1]

Originally posted by OU812
Fortune favors the bold.

Sure, but if he can afford a mortgage, he should just purchase his own place in Alberta and manage it

In my eyes, the risks are exactly the same in the original scenario and the one I just suggested, except you have 100% control in the one I suggested.

[dirtsniffer]

Originally posted by Feruk
..., anything below a 20% down payment would make me question involvement. ....

I agree with this.

But because he is looking at this as an investment I doubt he will want to use more than 5% and he can get away with it due to you being a FTHB. You screwed if he bails

[Xtrema]

Originally posted by gwill
If it was me I would dive right in as long as a proper contract is done up by a lawyer of my choosing.

Show me how a contract that can squeeze blood out of a stone?

I have seen partnerships that failed more than succeeds. 9/10 times is about expenses and who is drawing funds out of the partnership. It's easy to say 50/50 on profit but it's much easier to cook the book to have 0 profit or losses.

OP also didn't say they will co-sign the mortgage but he will own the mortgage out right. So unless OP's friend is coming up with a 30%+ down, it's risky as hell.

OP also doesn't own a home right now, this will have complication when he decided to buy his 1st home.

I can't totally judge OP's friend's character but from OP's description, he is both jobless and lazy

He is the type of person who does not want to work but will if he has too.

So that's a giant warning sign already.

This is not the first time I have seen someone (real estate agent, people in the trade) trying to exploit other people's credit for their own profit and calling it a partnership. But if OP's friend is a good character and it's more a 50/50 partner as laid out by Feruk, it may be a good risk to take.

That said, I have also seen partnership that worked, as long as each party's role is clearly defined and know what each can get out of it. If OP wants to be the money man and paying his friend to be the muscle, so be it. It's just cost of doing business. But if it's a 5% down and he want 50/50 of profit? Go pound sand.

And gwill, your example is also possible but that is totally faith based investment.

As Okanagan real estate goes, I think with $cdn going south, it's gonna heat up. So at least there is that going for this deal.

[Swank]

edit: ^ beat me to it

Originally posted by Dumbass17
He is the type of person who does not want to work but will if he has too.

This alone would be enough of a red flag to me to stay far away from this endeavor.

[gwill]

All the ballers around here whining like this is a 100% raw deal for the op. Get your heads out of the sand for a moment to breath. Clearly no one here has done anything like this nor does it seem anyone but me knows anyone who's done this. I'm shocked so many ballers think this is fraud or that the op is the only one taking all the risk. lololol

I would ignore the majority of the posts here and do some homework from people who have actually done this. Chat with a lawyer and do up a contract.. A few legitimate concerns do come up regarding what the down payment is, the house being in another city, and what types of repairs may be needed....

If he's trying to cheat the system with 5% down I wouldn't do it.

If you want to pm me your number I can ask my friend to call you to speak about any challenges he's had, what he would have done different or if he would do it again. My friends owned this one property for about 6 years so he would have gone through all sorts of ups and downs with the friend he bought the property with.

[Feruk]

Nobody here is saying buying a property with a partner is a bad idea, the concern is the partner and the specific way this deal appears to be structured. Your one buddy put down the full damage deposit while a different buddy was the ONLY one on the mortgage? Doubt it. If not, you're no further ahead.

[gwill]

Yes my friend got the mortgage and his friend put the full 20% down. When you get into buying multiple properties it becomes difficult to get approved. His friend wanted to push forward on a property he found and because they were best friends they moved ahead with the deal.

Another friend has 4 properties and went out and bought a 5th last year. He had his wife pretend like they weren't together so she could get approved easier.

Anyways this isn't a strange proposition depending on what the specifics actually are. Of which none of us know as he hasn't specifically mentioned anything... Everyone's too busy speculating on it being a horrible idea to see that it can actually benefit both of them.