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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127472  
Subject: Re: Purchasing House with a Friend Date: 3/23/2001 12:14 PM
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Hi Tricuspa,

1) From a financing perspective, if you both have good credit, then yes it would give you a better buying budget (assuming you both have decent income's to contribute to the deal.) Get a good loan broker that is experienced in investment deals with multiple buyers.

2) Regarding doing it jointly... make sure you go into excruciating detail in a partnership agreement. Better yet, set up a corporation or LLC in your state or Nevada for this purpose, and you can both own whatever proportion of shares you agree to (hint: 50-50 is the worst idea, the work and responsibility split is never equal.) This is safer for you legally, easier to transfer partial ownership if you need to, better as far as taxes, and usually can costs just a few hundred bucks if you know how to register and maintain yourself.

3) If it's just you two, agree on a third disinterested party and give them an equal 1/3 voting right for your company or partnership. You and your friend could each "own" 49%, and the third own 2%, but all three have 1 vote. That way the odds of completely destroying your friendship are slightly reduced from 100%, and it will happen a little bit more slowly.

4) Set up agreed exit methods in advance. Put it in writing that if one wants out, he must give the other one the last opportunity to buy the first persons shares at a competitive offered price before closing a deal with anyone else. That way, as insiders, you both have the chance to stay in if you want to, but you also have the path to get out and get your share of your cash out if you want or need to.

Realize that your charting a path on very thin ice when doing capital deals with a buddy. It never looks that way from the beginning, but I and many others on these boards speak from painful experience... it rarely works, and the worst part is it often destroys the closeness of the friendship if not the friendship intself. The *ONLY* way to mitigate this risk is to do all the legal planning and contract work in advance as though you were dealing with someone you had no trust with and don't even share the same language with. In other words, imagine every possible worst case scenario, and create a plan and put it into writing in your contract or bylaws. And even this is just reducing the risk a bit.

So... reduce the risk all you can, then if it is still irresistible, go for it! If you've nailed everything in writing, and it's clear how anyone can walk away if/when they don't want to play anymore... you've got much beeter chances of winning WITH your buddy!

All the best!
Dave Donhoff
Home Finance USA
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