Don’t Share Real Estate Ownership
I have very few must-do’s and should’s in my life and for the lives of my clients. This one, though, I’m clear about: Friends don’t let friends share real estate ownership with other people.
What’s wrong with sharing real estate?
The problem with sharing real estate ownership or any other illiquid asset is the fact that it’s illiquid. If you want out for whatever reason—there’s another opportunity, you don’t like the investment anymore, you need the cash, you get divorced, your partner dies, you have to fund college education, or whatever the reason—you can’t unload that asset without the consent of the other owners. If the other owners do consent but still want to own their share, you now have an asset with little market viability. Who’s going to want to own property with your previous partners? Probably very few. How will you sell? You probably can’t.
Then there’s the flip side. What if you don’t want to sell and your partner does? Now you might have to sell an asset when it doesn’t work in your financial plan. You might have to be in business with a new owner. You might have to buy out your partner(s) when you don’t have the cash to do so. This will create a layer of stress in your life you don’t need right now.
Any exceptions? Not really. I wouldn’t share a mountain chalet, a beach cottage, or any vacation property. I wouldn’t share an investment property. I wouldn’t share with friends, family, or colleagues. The only time I’ve ever seen this happen successfully is in two instances: (1) a business arrangement among friends to buy, fix, and flip (and they got very lucky on timing, picked a good property in a great location, and did a phenomenal upgrade); and (2) two family members bought a vacation home to share, were both very wealthy, and when one wanted out, the other had no problem buying out the share of the other owner (but again, good timing helped—the cash was available).
This is the same reason I’m not wild about REITs or TICs unless there’s an obvious exit strategy that can be executed at any time. Real estate ownership shares: Just don’t do it.