Real Estate Partnerships – What You Need To Know
When it comes to real estate partnerships, there isn’t a magic formula to guarantee success.
You have to put in time, effort, and commitment to make them work in the way you want.
In saying that, there are a lot of things you can do to help position you and your partner for the success you deserve.
Likewise, there are some things you really shouldn’t do too.
You probably have a million questions running through your head about the right way to set up a partnership.
So, read on to learn more about the Do’s and Don’ts of a real estate partnership.
The Dos And Don’ts Of Real Estate Partnerships
Should I Partner With A Friend?
Partnering with someone you know and trust can be an attractive prospect. But, is it the right thing to do when it comes to investing?
Do:
- Assess friends and family members in the same way that you would assess a stranger. Consider if partnering with that person is a wise investment that is going to produce the results you want.
- Treat it like a legal arrangement and have a written agreement in place. That way you can fall back on the written rules if any issues arise. It may also help to have an impartial third-party mediator to keep discussions fair and objective.
Don’t:
- Don’t go into it blindly, trusting that everything will be OK. Often, you will know what your friend is like in a social sense, but not necessarily in a business environment. Do your homework before jumping in and risking your reputation.
- Don’t be convinced to take on the lion’s share of the work, risk, or financial burden. Make sure that both partners are contributing equally. It doesn’t have to be a 50/50 financial split. But if one friend brings the money, the other has to bring something equally valuable in return.
Should I Listen To Advice?
If you decide to enter a real estate partnership, then people will likely have a lot of advice for you. But, should you listen to it?
Do:
- Assess who the advice is coming from to ensure it is a credible source. Are they an investor themselves? Do they understand the local market you are buying into? Have they experienced their own success?
- Consider a Mastermind group or a place you can seek advice from experienced property investors.
Don’t:
- Don’t blindly take advice from friends and family or someone that knows someone that once invested in property. They may have the best intentions when advising you, but do they really know what they are talking about?
- Don’t rely solely on advice from those in the know. Instead, ensure you do your own research on each market you are considering and each individual deal that presents itself to you. Due diligence is a key part of selecting the right deal.
Giving The Partnership Chance For Success
There are many successful partnerships out there. However, there are just as many that have failed. You want to make sure that you give your partnership the best chance of success.
Do:
- Define your roles and responsibilities within the partnership so that everything is covered off and nothing gets missed. These roles should be assigned based on each partner’s skills and abilities.
- Have an agreement in place that sets out the terms of your partnership, including the profit split and what will happen if a disagreement arises. Protect yourself and your assets by understanding how any losses might be divided or if one partner wants to leave the partnership. Have all of this checked by a lawyer so that it becomes a binding contract.
Don’t:
- Try not to overly complicate things. Set out simple terms for creating an ideal partnership. Avoid unnecessary legal jargon to make sure that both partners understand the agreement and what they are getting into.
- Don’t rely on your partner to do everything. You must contribute an equal value to the partnership. While you need to evaluate your partner, you also need to evaluate yourself. Understand what you have to offer and the areas you are lacking so that you can source a complementary partner. Knowing what you bring to the table will also help you to evaluate the potential of a partnership.
Assessing The Right Deal
At some point, your partnership will need to assess its first deal. If you have an experienced partner, they will be able to guide you through a lot of the process. However, if you are both new to investing, you will want to consider these things.
Do:
- Complete a full analysis of the deal in question. At the very least, you should be able to predict the value and profitability of the property before investing in it. Seek advice from relevant professionals, like real estate agents and property managers, to help you avoid costly mistakes.
- Buy the right property for the skill level of your partnership. If you or your partner are more experienced, then you can consider a larger or more complex property. However, if you are both new to investing, you may want to consider a smaller property first so that you can both learn the ropes.
Don’t:
- Don’t overpay! It is very common for first time investors to overpay for investment property. This is because you may not have intricate knowledge of the local market at this stage. Paying too much obviously impacts the potential profitability of the property. So, complete thorough due diligence and market research before putting an amount on the table.
- Don’t buy in a bad location. When buying any property, location is key. Buy in the right location and you will find yourself able to charge premium rent, attract quality tenants, have high occupancy rates, and great profitability. Yet, buy in the wrong area and you could find yourself with a lemon of a property on your hands. And lemons are hard to get your money back out of!
As you can see, there are many things to consider when investing in property through a partnership. Sign up to our newsletter to gain more great tips on partnerships and real estate investing as a whole.
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