Investing your money in an investment property can be very beneficial for you. As soon as you start paying the monthly payments, you’ll also start building equity on that property. There is a good amount of savings through tax benefits. That is - if you’ve any rental expenses, you can deduct that expense from your other income sources. These costs may include items such as - property taxes, mortgage interest, repairs, insurance premium and property management. These costs will save your pocket at the time of paying the tax. Normally, investment property can provide you a regular, steady earning from the rental you’ll get each month.
If you’re willing to own an investment property, you’ve to render enough time, effort, and your finances towards it. If you can’t manage any of these factors, you can start the venture with a friend. Maintaining this partnership is not at all simple. There are several challenges which you may have to encounter. Now, you must have a look at the common problems which may occur while getting an investment property with your pal.
1. Both of your credit reports are attached with same mortgage rate:
The lender will engage both of your credit reports as you and your friend’s name will be in the mortgage doc. If one of you’ve bad credit or any negative items on your credit report, it will eventually influence the mortgage terms. The rate of interest can increase due to the bad credit score. A small change in the interest rates can compel you to pay few thousand dollars more. You’ll find yourself paying a very big amount at the end of the loan term. So, consult with your friend about this matter and if there is any problem regarding your credit score, make sure to solve it as soon as possible before taking the loan.
2. Difficult to step back:
During your college life, you might have stayed with your friends in a house or in an apartment as a roommate. According to the rent agreement, you also have shared the rent and all responsibilities between yourselves. But, you could have also stepped back from your part of rent and responsibilities at a point of time with proper notice. But it’s not that simple with a mortgage loan. You and your friend both have the equal responsibility to pay off the mortgage till the end of the term, as both of your names are included in the loan documents.
You have to maintain this responsibility, even you desperately want to get rid of it. To remove the responsibility from any partner’s name, you either have gone for refinance option by transferring the entire loan under one name, or you’ve to sell the property totally and distribute the sale proceeds. Both options can be challenging. Selling a property can be a very long task, and your lender might not approve the refinance option for your case. So, it’s wise to have a written agreement, where a provision can be listed for the partners that any one of you can exit when needed, through proper procedure of course.
The agreement must also include several other important aspects. It should be mentioned there that if any of the partners expires suddenly, whether the other partner become the sole owner, or he or she needs to buy out the portion from the existing heirs. You should also calculate the percentage of shares if you decide to sell the property. To reduce the risk, each of the partners must avail life insurance policy. If any of the partners dies, his portion of mortgage payments should be paid from the insurance money.
To be continued….