Most people either purchase a house on their own or with a spouse - simply because it's easier legally. Purchasing a property with someone who isn't your spouse can be a complicated endeavor, but it can also be a smart one. If you're looking to invest in real estate, then you may find yourself having to draw up some real estate contracts. This guide discusses some of the things you should know.
Purchasing a Deed With Another Person
The deed and the loan are two separate things. Usually, one would want both parties that are on the deed to also be on the loan. However, there are exceptions. For example, when a parent guarantees a home for their child, they may be on the loan but not the deed. The deed is who truly owns the house. The loan is who owns the debt.
However, that doesn't necessarily mean the person on the loan is the only person responsible for the debt. Like tenancy, those who are on lending documents are jointly and severally liable.
For example, though one party may own 30% of the property and the other may own 70% of the property, they are both responsible for ensuring that the debt is paid. If the 30% owner stops paying their bills, then the 70% property owner can take legal action against them for that 30%. However, the bank can still foreclose on the property if that 30% isn't paid by someone.
Figuring Out Inheritance
One complication when purchasing property is how the property will be distributed later on. Consider a situation in which two friends split a property 50/50. If one friend passes away, then they could leave their property to their four children. Suddenly, the property has now been divided 50/12.5/12.5/12.5/12.5. This can be a logistical nightmare.
This can be avoided with the right contracts. A contractual agreement can be drawn up that allows the other individual the first right to buy that 50% of the property from the children or other beneficiaries. The beneficiaries will still get the value of the property, but the surviving partner will be able to maintain the coherency of their investment.
Calculating On-Going Expenses
When you purchase a property, you have to pay more than just the mortgage. For example, you'll also have to pay property taxes, insurance costs, and utility bills.
Before moving ahead with a purchase, you need to determine who is going to be paying for what. The distribution of these costs should all be outlined in a legal document; if they aren't, then you aren't going to have any recourse if the other person stops paying their share appropriately.
Legal documents a solid way to ensure your investment, and they also provide documentation in the event that you or the other individual(s) involved can't remember who is responsible for each payment. While working this out, you'll be able to figure out a structure that is fair and equitable, rather than guessing.
Discussing an Exit Strategy
What happens if the other person who owns your property wants to sell? This issue is similar to the issue of inheritance. An exit strategy is a contractual agreement that outlines how partners can exit out. As an example, it might allow a sale of the property, but only with the permission of everyone involved.
Due to the complicated nature of purchasing property with others, it's often better to work with a real estate attorney as well as a real estate professional. Though a real estate professional may be able to walk you through the process, they aren't going to be able to discuss the legal side of your agreement. If you want to learn more about this process, contact us at Joseph L Mooney III Attorney At Law today.