Partnership in real estate can open many doors that were otherwise closed. It can expose you to a minefield of risk, but can propel you much faster in your investments. Let’s take a look at the reasons to avoid partnerships first.
5 Reasons to Avoid Partnerships
- Partners take part of the deal. Anybody that you bring on, whether to do work, or to bring money, is going to want part of the deal. They will want to have a percentage interest that they hope pays them either regularly or at the end. This cuts into your profits. That sucks.
- Partners want things. They don’t always want the same things as you. They want the house to be panted fuchsia because they like fuchsia. You think fuchsia is hideous. Now, you have to have a discussion about the pros and cons of fuchsia when you should be advertising the vacant unit. Fuchsia. Am I right?
- Partners like to talk. Everybody wants to tell the world about how great they are. Investors want to tell people how many properties they own and what they are doing with them. Your partner might not be able to keep a secret very well. Maybe you don’t want the world to know that your recent tenant was evicted for drug use on the property. Your partner might not care about that and blab it to everyone.
- Partners want an exit. They want to know they can leave the deal and get their money back. They want to know when. You’ll have to bake this prospect into your partnership agreement. You may have to sell the deal far sooner than you hoped.
- Partners take time. You will need to spend time discussing options and making decisions. Doing it yourself means you make the decisions as quickly as you want. With a partner, be prepared to explain a lot of things or have them explained to you.
Partnerships aren’t always a bad thing. Here are 5 reasons you should find a partner.
5 Reasons to Join a Partnership
- You need money. This is the biggie. You might have spent a ton of time researching and finding the right deal. When it comes along, you might find you don’t have enough money to buy it. It’s heartbreaking. A partner can help.
- You need work done. A partner can come on with a certain skill-set and can do work that you can’t. Perhaps the partner is a contractor and can do rehab for cost. Or the partner can do the bookkeeping.
- Partners have ideas. They sometimes have great ideas. Brainstorming together can help you overcome obstacles you wouldn’t have otherwise.
- Partners take risk. They may be able to accept some of the risk of the business failing. A bank might use them as a guarantor for the loan. They can help shoulder some of the liability burden.
- You’re friends and want to work together. Got ya! There isn’t a fifth reason.This isn’t a reason to join a partnership. This is a good way to lose a friend. Don’t do it just because you like each other.
In the end, there aren’t a whole lot of reasons to partner. But sometimes you need them. Do it yourself whenever possible, but if there is a need, find the right one.