With the development of technology, more and more investors are starting their real estate investment journey through apps that connect them with friends who share similar investing goals. This new approach provides an accessible starting point for novice investors to get their feet wet in real estate. By pooling money with friends, investors can overcome capital constraints and achieve diversification. However, blindly investing with friends via apps also poses some risks if proper due diligence is not conducted. This article will analyze the pros and cons of this emerging real estate investing method, and provide suggestions on how investors can maximize benefits and minimize risks when investing in real estate with friends through apps.
Apps enabling collective real estate investing with friends provide easy access for new investors
The proliferation of real estate investing apps allows investors to easily find investment opportunities and like-minded partners. By connecting with friends who share similar risk appetite and return objectives, investors can overcome the capital hurdle to real estate investing. Beginners may only have several thousand dollars to invest, insufficient to purchase an investment property on their own. However, by pooling funds together with friends, a group of novice investors can collectively contribute enough capital to invest in real estate projects. This pooling of funds also provides instant diversification, spreading capital across different properties, markets, and asset types. Investing small amounts across multiple deals is less risky than putting a large amount into a single deal. Therefore, real estate apps help provide new investors with easy and diversified access to the asset class.
Conducting due diligence is crucial when investing in real estate with friends
While apps may make it easy to invest in real estate with friends, proper due diligence is still essential. There are inherent risks when investing with friends that need to be mitigated. Investors should carefully vet friends before committing capital together in a real estate deal. Background checks, proof of funds, and investment philosophy alignment should all be confirmed beforehand. Legal paperwork should clearly delineate each investor’s rights, responsibilities and ownership stake. If friends have different objectives or risk tolerances, conflicts may arise down the road. Setting clear expectations upfront aligns interests and prevents disputes. Friends should also conduct due diligence on the properties themselves, evaluating deal sponsors, markets, asset types, business plans, financials, etc. While apps might simplify finding deals and partners, the onus is still on the investors to perform their own thorough analysis.
Balancing friendship and business requires careful communication and expectation setting
When doing business with friends, the personal relationship also needs nurturing. Investing together mixes finances with friendship, which can strain relationships if conflicts arise. Clear and ongoing communication is essential to preserve both the business and friendship. Partners should proactively address any issues before they escalate into larger problems. Setting expectations upfront via legal agreements and philosophical alignment helps avoid misunderstandings. Friends should also remember to celebrate successes together and maintain fun friendship experiences outside of business. Separating the business and friendship components helps keep perspective. With care and intention, it’s possible to jointly invest in real estate with friends while also strengthening relationships.
Take a portfolio approach by diversifying across friends, deals, and platforms
While apps make it easy to invest in multiple deals with various friends, it’s important to take a portfolio approach. Diversify across different friends, deals, platforms, and real estate sectors to mitigate risk. Don’t put all your capital with just one friend or into one deal. Spread investments across different friends, asset types (e.g. residential, commercial, multifamily), and locations. Use a mix of real estate apps and investment platforms. Monitor the combined portfolio and rebalance if concentrations arise. Implement maximum investment percentages for individual friends, deals, and platforms. This portfolio approach provides breadth and reduces exposure to any single investment.
Do thorough due diligence regardless of friendship or ease of app investment
Real estate investing apps with friends offer an easy entry point, but still require rigorous due diligence. Don’t let the convenience provided by technology or familiarity of friendship lead to complacency. View each investment objectively, assessing the property fundamentals, financials, markets, rent rolls, comparables, etc. Review the background and capabilities of sponsors, developers, and deal partners. Understand the business plans and risk factors. Evaluate friends’ backgrounds and investment compatibility. Leverage apps to source deals and partners, but rely on your own analysis to evaluate opportunities. The responsibilities of investment due diligence always lie with the investor, regardless of how deals and partners are found. Shortcuts often lead to issues down the road.
In summary, real estate investing apps with friends provide an accessible starting point for new investors, allowing easy capital pooling and diversification. However, proper due diligence on friends, platforms, and deals is still essential to balance opportunities and risks. With careful upfront alignment and ongoing communication, real estate investments with friends via apps can be an rewarding approach for novice investors to gain exposure to the asset class.