Real Estate Investing – 3 Simple Rules For Partnering
Here are 3 simple rules for partnering:
1. Don’t partner unless you absolutely need to. If you don’t need Money, a Skill Set, or something else Vital, don’t partner. Don’t partner with your friend because it would be fun or some other such nonsense.
2. Every partner needs to bring something to the table – splits are calculated accordingly. If you want to build a spec house, but you don’t know anything about building, you could partner with a builder, for example.
It is the very best if everyone puts in the exact same amount. It’s much trickier if someone puts up cash and someone puts up the lot and someone is the general contractor. It can work but you have to think it through to be fair to all.
3. Always, I repeat… Always have a Partnership Agreement. If I partner with my best friend, I have a partnership agreement. If I partner with my brother, I have a partnership agreement. Think of the worst thing that can happen – maybe your partner dies, now what is your agreement with the heirs? At the minimum, agree about what happens if someone wants out, doesn’t ante up the money or doesn’t do what they agreed to. Since you have to agree upfront, this saves the relationship.
Talk about if it’s a losing proposition. Not all investments work out the way you’d like. It doesn’t seem equitable if you lose all your money or are possibly left with a foreclosure, and the contractor just loses time and profit.
Spending a little time upfront working out the details will also give you a pretty good idea of how your partner(s) will be to work with.
Partnerships can make the difference between being able to invest or not. Don’t rule it out as too complicated. I’ve done lots of partnering in real estate deals. It opens doors you have no access to alone. As with most things though, there’s never a better time to work out the kinks then before you are at risk.