Real estate has always been attractive to investor. However, there are many who would like to invest in real estate who either lack knowledge or don’t have sufficient funds. If you are one such individual, you should seriously consider forming a partnership. In fact, if you have sound knowledge about the local real estate market, getting into a partnership with someone who can fund you will help establish a win-win relationship.
Many people have got themselves burned by choosing the wrong partner. Don’t get taken in by a person just because he has the means to fund your investment. You should do your due diligence. The things you should be certain about are the following:
Remember whether your partner is a family member or best friend, don’t trust the person blindly. When you are investing in real estate, it will be a business venture where you use your expertise and the other his money. The key is to find a partner who has similar investment goals as you.
It is important to establish a formal partnership when partnering with someone in real estate, or for that matter any business venture. There are a range of partnerships that you can choose, right from LLC and REIT to LLP and TIC. Choose a partnership that suits both parties and you have decided who will be the minority and majority partner.
Remember when you invest in real estate, both partners will be liable for taxes. This should be taken into account when forming a legal partnership.
When you finally find the person you want to partner with when investing in real estate, make sure the terms and conditions of your partnership are penned down. This is true even if your partner is your best friend. As mentioned earlier, you will be in a business venture and things can go south. You should be prepared for any eventuality and a written document keeps you and your partner safe and prevents misunderstanding later on. You may take help of an attorney to define the partnership terms.
Here are some reasons why it’s prudent to put everything in writing.
Each partner knows what work he or she has to do. You cannot run a business if there are no clear cut goals. So, you and your partner have to figure who will do what. Also, you should also mention what the consequences would be if one of the partners fails to fulfill his role. This will prevent either of you from thinking that you are doing all the work while the other one is sitting around and reaping the benefits.
People tend to forget the spoken words. And, when it comes to investing in real estate, there will be thousands of dollars exchanging hands. So, you definitely don’t want to forget anything nor would you want your partner to forget crucial bits of the partnership. When things are written down, the chances of forgetting the terms and conditions are negligible.
You and your partner should have a proper exit strategy in place. The real estate market can get volatile and you or your partner may decide to sell or buyout. What happens then? Having possible exit strategies in place can save a lot of headache later on.
The agreement you sign should clearly mention which partner is the key decision maker, as he would be the one to decide how the money is spent. It goes without saying the partner with sound knowledge about the real estate market would be the decision maker, but if this is not written down, there could be a huge clash if you and your partner don’t agree on key issues.
Make it a rule to conduct regular auditing and ensure each partner is apprised of the progress. Also, make provision for regular communications and meetings so that communication remains smooth throughout. This is imperative to make the partnership healthy and long-lasting.
So should you or should you not forge a partnership when investing in real estate? If you have the money but lack knowledge, or vice versa, it makes sense to get a partner on board who can compensate where you fall short. On the other hand, if you have both – finances and knowledge – there is really no need to get a partner and share your profits.
Feel free to Subscribe to our PropertyCluster Blog to stay up to date with our latest posts and information on Real Estate Industry or you can Follow Us on Facebook, Twitter, Pinterest and Google Plus for regular updates.