Real Estate Partnerships – Are They Right For You?
Real Estate Partnerships are powerful. You can take the best of two individuals and combine them to be a strong collective force.
They also allow you to expand your realm of opportunity.
This is especially true when it comes to a real estate partnership.
Having an investment partner (or partners) gives you bigger reach in the real estate market and access to far more deals and opportunities.
However, you need to ensure that a partnership is the right thing for you to enter into. If you don’t do this research first, you could find yourself in hot water later down the track.
So, let’s look into what a real estate partnership entails and if it is the right option for you.
What Is A Real Estate Partnership?
Put simply, a real estate partnership is a commitment between two or more parties to pool your money, resources and skills to transact in Real Estate partnership together.
However, a real estate partnership goes far deeper than simply buddying up with a friend to buy apartments.
That’s not to say that you can’t partner with people that you know, but your focus should always be on making the partnership successful and genuine. It means making sure you have complementary skills and are all working towards the same goals. Without these key elements Real Estate Partnerships can go wrong.
A partnership can consist of anything from a simple agreement between two people to a complicated structure where different partners contribute various levels of capital and resources. They can be run via a company structure, like an LLC, or be a basic written agreement between two or more people.
A partnership should take your investments to the next level, rather than hindering your progress. What you get out of it will directly relate to what you put into it!
The essence of a good partnership is choosing the right person to align with. When we are talking real estate, we are talking about a lot of money. You don’t want to make a fatal error that could set your investments back!
So, is a real estate partnership the right option for you?
Pros And Cons Of A Real Estate Partnerships
As with any investment decision, it is important to choose the right path for your individual circumstances.
Let’s weigh up the pros and cons of entering into a real estate partnership:
A Hive Mind: You know how they say that two brains are better than one? That can be very true in a partnership. Not only do you get to pool your money, but you also get to pool your combined brainpower. With a mixture of skills and experience to draw from, you can get some amazing ideas going. Plus, it also means you can divide up the different responsibilities of a partnership to the partner with the most appropriate skills.
It’s Not All About The Money: While funds are an important part of any deal, some people may have something more valuable to offer than dollars. They might have key skills that you don’t, access to a great key contact in the industry, or a wealth of real estate experience. As long as you are all clear about what each partner is bringing to the table, you can create an agreement that utilizes all of the resources on hand.
Great Connections: The great thing about partnerships is that everyone brings something different to the table. As we just mentioned, it does not have to be money. You could partner with a realtor who would have access to great deals before they hit the public market and has a huge network of sellers, investors and other potential partners to draw on. Experienced investors can help newbies learn the ropes and could even offer their expertise in exchange for a share in the profits.
A Diverse Team: They say that a problem shared is a problem halved. Sharing out the responsibilities allows you all to divide and conquer the extensive job list. When it comes to buying and managing property there are always administrative, maintenance, practical, management and financial tasks to handle. Each partner could take the lead on a different area of expertise to make sure nothing slips through the cracks.
Supercharged Success: Generally, when you enter into a partnership, you are opening yourself up to the possibility of greater success. There is only so much that one person can achieve. When two are more are in the mix, you are going to have access to better deals in a faster timeframe.
Blurred Lines: It is very easy for the lines to blur on all sorts of things if you don’t structure your partnership well from the beginning. Anything from money to responsibility, to individual tasks and hours worked can be disputed. It is important to document how each person in the partnership will contribute and what their responsibilities should be to avoid unnecessary conflict.
The Costs: There are costs involved with setting up any partnership, even if it is just the legal costs to have basic documents put together. The cost factor rises if you decide to operate your partnership as an LLC or an LLP. Then, you have to encounter the costs associated with each deal. While necessary, these costs can soon add up, especially if they are not split evenly throughout the partnership.
The Profit Splitting: Money can be the cause of a lot of drama in any situation. The great thing about a partnership is that you can split the costs, but it also means you have to split the profits as well. Before any profits are given out, clearly outline in writing who is receiving what and why they are receiving that amount. Otherwise, money dramas could quickly ensue!
Clashing Heads: We don’t mean headbutting each other (we would hope no partnership would have to result to that!), but we do mean that there will be times when you might clash with your partner. It is unlikely you will agree on everything all the time. So, you will need to have some form of conflict resolution in place to prevent your partnership from dissolving.
Choosing The Wrong Person: Before jumping into a deal or being wooed by the numbers, make sure you are choosing the right person to partner with. If you select someone who has different goals, is not willing to pull their weight, or does not have the funds needed, then they can set your investment journey back.
Once you weigh up the pros and cons of the situation and how each aspect might impact you, then you can decide if a real estate partnership is for you.
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