Structuring A Successful Partnership
Embarking on a real estate partnership is exciting and nervewracking at the same time.
What if it all goes wrong?
What if things don’t work out as planned?
To remove those questions of fear from the equation, you want to ensure you have structured your partnership well.
That way, you can have a business partner to help share the load and celebrate success with. Plus, you can avoid the usual pitfalls of working with someone.
So, how do you make sure you get the structure right?
Well, read on as we are going to highlight the key things to consider when going into a real estate partnership.
Set The Parameters
The thing with a partnership is that it can be anything you want it to be. It could be a 50/50 split down the middle for everything. One person could bring all the knowledge and the other could bring all the funds and credit. Or, one could even act in a mentor role to a junior investor.
The possibilities are endless.
For this reason, it is really important to set the parameters before you begin so that everyone has the same expectations. A partnership needs to be beneficial for both parties.
If you are not putting skin in the game with funds, then you should expect to do a lot of the groundwork on getting the deal together. Perhaps you will get in with management of the property or some other trade-off that will make the partnership equal.
Understanding each person’s role in the partnership from the start will help avoid conflict further down the track.
Discuss The Profits
Once you have determined the expectations of each partner, it is time to talk profits. Money is the area that has the potential to cause the most conflict. So, prevent the need for an argument by deciding how you will split the profits.
Will it be down the middle at 50/50?
Or will it be a different split based on each partner’s level of contribution to the deal?
There is no right or wrong answer here, it is simply what will work for your financial situation. It may even be that one partner gets the lion’s share of the profits if they are bringing a lot of the collateral along with them.
As a junior investor, taking 10% of the profits might be a good deal as you can gather knowledge and experience. Plus, it is the first step on the property ladder. However, more experienced investors will likely want an even split in profits.
You can also reassess the profit split down the line if you end up investing in multiple properties together or if the workload shifts markedly.
Documenting The Details
Once you have the details nailed down, it is vital that you document them in some form of a partnership agreement.
You may choose to have a simple written document, a comprehensive legal file, or to formalize the partnership as an LLC or Joint Venture.
The main point of documenting a partnership agreement is to have something to refer back to in the future. It removes the need to remember fine details and holds you both accountable for your responsibilities. It also removes doubt and confusion.
It is recommended that you speak to an attorney about this agreement so that it is fair and legal. The small amount that you invest in legal fees will be worth it long term as it will make for an easier partnership.
Things That Make A Successful Partnership
Partnerships aren’t only about the division of responsibilities and profits. There is a lot more that goes into creating a successful one. Such as:
Communication: Staying in touch and communicating is really important. That way, you can keep on top of everything, discuss any issues that have arisen, and celebrate wins together. Come up with a communication method and timeline so that you can stay in touch regularly. Make sure that communication method includes meeting in person from time to time.
Shared Goals: Your partnership goals should be a combination of the individual goals you want to achieve. For that to happen, your goals need to be complementary. Having the same long term goals will mean that you have a unified focus. Both of you will work towards creating the same successful outcome.
Recognize Strengths And Weaknesses: Each partner will have areas that they are strong in and some that they are not so strong in. Capitalize on your collective skills by playing to your strengths. Let each partner handle the things they are good at to divide and conquer the various responsibilities. It is helpful to outline each partner’s roles based on their strengths.
Be Supportive: Have respect for each other. That means providing support where needed and resolving any conflicts as swiftly as possible. You won’t agree all the time, but don’t let any negativity fester. Instead, discuss the issue, come up with a resolution, and reconcile quickly.
Consider Your Collective Reputation: Your reputation is your brand, so you want to make sure you are protecting your collective reputation. Don’t partner with someone that will put a black mark on your reputation and work hard to build a strong rep for your partnership. You will both benefit from the goodwill generated by a strong reputation.
Full Commitment: Both partners need to be willing to commit fully. If one or both of you begin to slack off, then your overall results will suffer. However, on the flipside, if you both give it your all, then you both enjoy the benefits of success.
Skill Up: A partnership can be the beginning of a beautiful thing, but only if you work at it and increase your skills. Network together, build great connections as a team, and even invest in a mastermind program to access the wisdom and expertise of a mentor. Two heads are better than one, but even better than that is the hive mind of a mastermind group!
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