Investing with a partner to buy real estate can be beneficial to both. You must take steps to ensure that the relationship will endure, however, so you need to develop a plan for the partnership from the initial investment through the exit strategy. Additionally, it has to be the right fit for you. While you are not getting married, you’ll be spending a lot of time with this person, and you will need to trust them with your future, which they will hold in their hands through your investment partnership.
Before you jump into an informal partnership and learn the hard way about the critical considerations of this endeavor, we will explore five tips for investment partnerships in .
Our first tip for investment partnerships in is to set up formal agreements for the business structure of the investment business. You will want to select a business form such as a Limited Liability Company (LLC) that is best for your goals and protects your investments from any problem a partner may face in their personal lives. Often, one partner holds 51 percent ownership of the investment business and agrees in advance to contribute more for this advantageous positioning. As this is a business relationship and not a marriage, try to avoid a 50/50 split, which can cause severe issues if there is a dispute. You should also decide on which method of ownership you will select through an LLC. If one partner should die, the other partner will own the property. If you should purchase property as a tenancy in common, another person can inherit the portion of the investment business upon a partner’s passing.
While you share in the management of your real estate investment business and the profits, the partnership may not be equal, but that does not mean you can’t play fair. Partners may put in different contributions of their money, time, or physical work. They may withdraw income from the business in differing degrees as well. For successful investment partnerships in , you should seek a fair balance between what is being given and taken by each partner so that both feel equally valued. Suppose one partner funds the projects while another does all of the footwork. Having agreed beforehand about what benefits each will gain from their efforts, the motivation and focus on the business will remain strong.
About Your Partner
Before entering into investment partnerships in , you must know your partner. Additionally, your personalities must work together. You may wish to do a small project together as a trial run before entering the partnership to ensure things are as they seem. You’ll share your financial future and reputation with this person. Partners with similar values and work ethic are much more likely to have a successful investment partnership. It is also crucial that there is complete transparency about personal finances and open communication about personal goals. They should be willing to sign a written agreement with each partner’s roles and responsibilities outlined. The contract should detail a system that will measure performance and outcomes from each partner’s contributions.
By building on existing skillsets each partner brings to investment partnerships in , you will know you can rely on your partner. While you may not always understand what your partner is doing, you must keep an open mind to their ideas and changes they may feel necessary to adjust the business for new goals. It is helpful to have regularly scheduled meetings to share progress, problems and help each other whenever possible. The right partner will complement each other’s strengths and cover the areas where expertise is lacking. As a side benefit to helping each other, the partners will gain new experience and build on their skillsets.
Great investment partnerships in begin with determining and outlining in the contract how the partnership will dissolve. It is better to openly discuss how you will resolve disputes and eventually how you plan to dissolve the partnership due to death or a parting of ways. While it can be uncomfortable to confront the possibilities of what can go wrong with a partnership, it is best to set everything out on the table and use a lawyer to draw up a legal agreement. Otherwise, you may end up paying legal fees for a long, drawn-out dispute because the partners did not take proper steps to set up channels of open communication, realistic expectations and establish actions for resolving any disagreements.
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