Making a successful real estate investment alone can be a daunting task, especially if you are still a beginner or don’t have enough capital. That’s why some real estate investors decide to form or join real estate partnerships. A real estate partnership structure can be in the form of a Real Estate Limited Partnership (RELP), Real Estate Investment Trust (REIT), General Partnership or Real Estate Syndicate.
A partnership gives people the chance to pool skill sets, resources, and experience to complete a real estate project. It can help you accomplish more than you could on your own. You will be able to spread risk, scale your business, increase cash flow, take on larger projects, and buy more investment properties.
However, not all real estate partnerships end up being successful. Some partnerships fail terribly and can even be detrimental to your business. Nonetheless, don’t despair if you are thinking of joining or forming one. There are some things that can ensure continued success for your partnership. Here are 5 important things you will need to make a real estate partnership work.
1. The Right Investment Partner
Finding the right person to partner with is arguably the most difficult part of forming a real estate partnership. This is someone you will be spending a lot of time with. Therefore, it is essential to partner with someone you like and understand well. If you haven’t had an opportunity to work or interact with them before, consider trying out one or two deals with them to learn how they work. If your first project fails, it will be easier to move on.
Learning how to find real estate investors is essential if you want to have a successful real estate partnership. Take your time and conduct due diligence on your partner to ensure they are a good fit. A good real estate partner should have access to enough capital, have complementary skill sets and useful connections. Do thorough research to assess your potential partner’s credibility, experience, and track record. Ask for references where possible.
You can find the real estate investors from family and friends, your real estate network, an online search, and real estate investment groups.
2. Common Objectives
Another critical aspect of a successful real estate partnership is ensuring that you and your partner have common objectives. Choose a partner that has a similar mindset towards real estate investing as you. What level of return do you expect? What real estate investment strategies do you want to use? For how long do you want to be in the business? If your potential partner has similar objectives to yours, then there could be a sound basis to form a real estate partnership. While it may not be necessary to agree on every detail, you should ensure that you have similar primary goals. This will help both of you in creating a business plan, which will be your roadmap to success.
3. A Real Estate Partnership Agreement
It is important that you put everything you and your partner agree on in writing. Make sure you draft and sign a real estate partnership agreement between you and your partner. Having an agreement helps to clear things up in case of legal problems in the future or when the real estate partners decide to split up. It acts as a protection for both partners. Even when your partnership is with a family member or friend, a partnership contract is essential.
The agreement defines the roles and responsibilities assigned to each partner, how the profits will be split, the procedure for dispute resolution, what happens when a partner becomes incapacitated, dies, or wishes to exit the partnership, etc.
4. Good Communication
Communication is key for any partnership in real estate. Regular communication helps to build trust between partners. To have a long-lasting, successful partnership you need to have open and honest communication. It is vital to make it a point to do regular check-ins with your partner on the state of affairs and make sure that both of you are still aligned with your goals for the business. You can have weekly or monthly reviews on your goals to ensure you are working towards a common goal.
If there are any concerns or issues, it is important to address them as soon as they arise. Pragmatically talking through issues as soon as they arise can help to prevent bigger issues in the future which can be detrimental to your business. Discuss and fix any arising problems. Where applicable, refine the agreement to ensure such issues don’t happen again.
5. Real Estate Investment Tools
Real estate investing is a very competitive business. The profitability of the real estate partnership will largely depend on the investment properties you acquire. Searching for real estate investment opportunities involves finding a suitable location and conducting the appropriate analysis of investment properties in the area to find the most profitable ones.
A real estate partnership should make use of real estate investment tools to find the most profitable investments in the market that are in line with the objectives. Using the right tools will not only make your property search easier and faster, but also more accurate. It is a superior way of finding income properties compared to the traditional method. Real estate investment tools have revolutionized the way investors can find profitable investment properties. Use Mashvisor’s tools to find profitable investment properties for your partnership. Some of these tools include a heatmap analysis tool, property finder, and investment property calculator.
The Bottom Line
Investors tend to form partnerships for many different reasons. However, a real estate investment partnership can bring you a lot of success or it can be a nightmare. The above tips may not guarantee profitability, but they will greatly improve your chances of success in real estate investing with a partner. To have a positive investment experience with your partnership, ensure you:
- Choose the right partner
- Have a business plan
- Draft a real estate partnership agreement
- Communicate well
- Use real estate investment tools.
If everything is done right, it can end up being a successful real estate partnership.
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