Co-investing in a buy-to-let property with friends or family – is it a good idea? It certainly can be, but it’s important to get the full picture before jumping in headfirst.
In this article, we’ll explain the many benefits that come with investing in a buy-to-let property with family or friends as well as the risks involved. At the end, we’ll share our top tips on how to make investing with people you know work as it should.
With shared investment comes shared profits, risks, finances, and control. When you add your personal relationship with each other into the mix, it can either help or hinder the situation – depending on how well you truly know each other.
What are the benefits of co-investing?
There are many benefits to co-investing with people you know – for you, your finances, and even your tenants, including:
Increased buying power
The more people involved in a buy-to-let purchase, the more buying power there is. Bigger deposits and higher combined incomes increase your affordability and promote healthier cash flow.
New investors can usually afford a one or two-bedroom apartment on their own, but the location might not be ideal. With family or friends, you can get something bigger or even better.
For example, you can buy a large property that can be converted into private student accommodation, or a desirable apartment in a prime renting hotspot.
Spread the costs of expenses
Deposits, estate agent fees, letting agent costs, ongoing maintenance, management softwares – these are all expenses landlords are expected to fund, usually from their own pockets. The more people involved, the less of a burden these expenses become.
Share the risk
It isn’t just expenses that are shared, it’s the risks, too. Going into property management alone can be daunting when you don’t have the experience behind you yet.
Investing in the right area, managing expenses well, and ensuring your property is run according to UK law isn’t a “nice to have”, it’s a necessity.
Co-investing spreads the risk, gives you an extra pair of eyes on the oversight, and can even lower the stress of property management day-to-day. You aren’t in it alone, and the benefits of that cannot be underestimated.
Easier to manage
Managing a property portfolio isn’t exactly easy (although there are ways to make it easier, like using a renting management software to ensure you’ve ticked all the important boxes and keep all your records in one safe place).
Yet renting with people you know can be significantly easier. Responsibilities can be split according to everyone’s lifestyles and in a way that feels fair for all.
There’s a human element to it all when you invest with loved ones, too. You might be more understanding and helpful with each other when it’s a friend/family member, rather than someone you’ve employed.
If a sticky situation arises, you might all band together and support each other, both physically (in terms of getting things done) and emotionally. All of which can make property management significantly easier to handle.
Enjoyable experience
Renting a property isn’t exactly considered a hobby. It’s a job that requires hard work and due diligence to ensure you’re following the rental regulations.
Yet when you invest in a buy-to-let property with friends or family, it’s a job you can do with people you know you get along with. Compared with flying solo or having an investment partner that you don’t feel comfortable with, you’re collaborating with someone you enjoy being with.
Even your tenants can find more comfort in this, knowing it’s a family-run business with landlords who are happy to be dealing with them.
What are the risks of co-investing?
Of course, co-investing with people you know also has its risks. The benefits of knowing who you’re working with can sometimes work against you, or simply work against the aims of running things smoothly.
Shared control
With shared responsibilities comes shared control. While the former is a good thing, the latter isn’t always. When everyone is in control, no one truly is.
Making decisions and signing paperwork with a tenant can be confusing and convoluted when it isn’t clear who’s responsible for what. Everyone may want a piece of the pie, which can make small decisions gruelling and lengthy to deal with.
Having multiple landlords can be just as confusing for tenants, too. When they don’t know who’s really in charge, they may contact different people and minor queries can become problematic issues.
They may even try to play you off each other, claiming to have told your co-investor about something they didn’t, just to see if they can get away with it.
Getting personal
Knowing your co-investors personally is both a blessing and a curse. Getting the actual buy-to-let mortgage in place means you aren’t just friends or family anymore. You’re tied together financially for a long time.
Their credit history can impact yours and how they choose to manage the investment can severely (and potentially negatively) impact your own income and financial responsibilities.
Maintaining professionalism
If you were a manager and your staff weren’t doing their job right, you probably wouldn’t be happy about it. You’d pull them up on it and maybe even fire them.
But with people you know, it can be a lot easier to let standards slip or let bad behaviour go. Many family co-investors forget that even though you’re related, you have to maintain a level of professionalism with each other.
You might not want to hear that your co-investor “can’t be bothered” to do their bit. Or you might let too many mistakes go unchecked because of your personal relationship with each other.
Sharing business with pleasure
Mixing business with pleasure puts you in constant contact with your family member or friend. Sometimes, this is a good thing. It can strengthen your relationship and give you a reason to spend more time together, bringing family or friends together.
But on the slip side of things, it can make you see a different side to your loved one that you never knew. For example, their laissez-faire attitude you love when you need a reassuring ear can cause you stress when you don’t feel like they’re taking things seriously.
Damaged relationships
When things go wrong in a buy-to-let investment with friends or family, it can be detrimental to the relationship you have. Arguments can ensue and cause riffs between the entire family or friendship circle.
When you don’t agree on a decision or if someone wants to pull out of the investment early, it can leave an irreversible mark on the relationship.
How to reduce the risks when investing with family or friends
Investing with friends or family doesn’t have to be a disaster. It can quite easily be the best thing you ever did together. Here’s our advice on how to get things right from the start.
Nominate specific responsibilities
There’s an easy fix to the issue of shared control. Set clear boundaries at the start and agree on the specific responsibilities for each person.
For example, nominate one person to be involved in tenant liaison, so there’s never any confusion about who tenants go to about their general queries and concerns.
Other key responsibility areas to assign to each co-investor may include things like:
- Property maintenance
- Administration
- Letting agent liaison
- Finance
- Emergency issues and callouts
It can even be a good idea to have a “manager”, so to speak, who oversees everything and checks that things have been done when and how they should be.
Agree on working standards
While there’s nothing wrong with talking shop over lunch, things can get messy if people aren’t taking their jobs seriously.
Agree on some basic working standards, such as:
- Who will make the final decision when you can’t agree?
- How will you settle disputes?
- What are you going to do if you don’t have time to do the work?
- Who will be responsible for your work when you’re on holiday or sick?
- How will you communicate with each other?
- What will the consequences be if one co-investor continuously falls short of their responsibilities? How will you deal with the issue cordially?
You may even want to set personal boundaries to maintain your relationship with your loved one, too.
For example, you might agree to have one dinner or phone call a month where you don’t talk about the buy-to-let at all, so it doesn’t take over your relationship.
Prioritise good communication
There’s a reason people say that communication is key in business. When we talked earlier about the risk of tenants playing you off each other – claiming to have sent money or paperwork to someone else – you need to be on top of it.
Even though you are family/good friends, things still need to get done – no matter what’s going on with you both personally. Prioritise being in touch – even if you aren’t on the best terms – and agree on how you’re going to keep in contact.
Scheduling time each week to catch up and check things over or having an agreed means of communication can be helpful.
Create (and agree on) an exit strategy
The last thing you want is for your relationship to fall apart because the co-investment has come to an end. More often than not, arguments come down to the money and how things are going to be split.
Before you even get into the investment together, agree on what your exit strategy will be. Get it all agreed in writing as clearly as possible and try to get comfortable with the idea that this might not work out long-term.
Invest in good legal documentation
Lastly, when co-investing with people you know, make sure you have good legal documentation. While these people are your friends/family, you still don’t want to take any chances when it comes to getting your fair share or dealing with the fallout of mistakes that weren’t your fault.
Investing in a good owner or shareholder agreement can set out things like how disputes will be resolved, what the roles are, and how your rights as an owner are protected in all circumstances. Without good paperwork behind you, you can be vulnerable to losing out more than you bargained for.
FAQs
Can I purchase a buy-to-let with a family member?
There’s nothing stopping you from purchasing a buy-to-let property with a family member from a legal perspective. You can get a mortgage with almost anyone, provided you both meet the criteria and have the funds available.
But it’s important to be aware of the risks involved before getting into it. While there are many benefits, sharing business with pleasure can put a strain on your relationship or permanently damage it.
Is it a good idea to invest in property with a friend?
Investing in a buy-to-let property with a friend has its risks and benefits. Knowing the person you’re working with on an intimate level can make managing a property more enjoyable, with shared risk and shared expenses.
Yet there’s a darker side to co-investing that can leave you extremely vulnerable. You need to know exactly who the person you’re working with is and what impact having a mortgage with them can have on your finances.
How to easily manage a buy-to-let investment with people you know
Many things make running a buy-to-let easier, but with communication being so important when investing with friends/family, good record-keeping is key.
A rental management software that enables all parties to see what’s happening, what’s been actioned, and what’s due – as well as having a shared space for all up-to-date paperwork and contact information – cannot be underestimated.
Investing in a buy-to-let with friends and family: things to remember
- Co-investing can be a good financial decision – you increase your buying power, share the risk, spread the cost of expenses, and can end up quids-in in both the short and long term.
- Knowing your co-investors personally can help or hinder you – while it can be enjoyable working with people you know, it can also impact your personal relationship, cause rifts, and make you more relaxed than you should be.
- Setting professional work boundaries and agreeing on an exit strategy in advance is crucial to success – make sure you have strong legal paperwork that sets out the details in case the worst happens.
Protect the environment. Reduce paper consumption and help save the trees as well as save money at the same time. 
