Real Estate Partnership-Top Pros and Cons Explained
With property prices soaring, buying land,
house or building commercial buildings on your own can be nearly impossible.
Not only do you need to have deep pockets, you also need the time and energy to
manage the entire process from beginning to end.
If you assess most of the top companies, nearly
all of them were formed when several people teaming up with to do bigger and
better deals. But such partnerships are never easy. Commitment to work together
is never something to be taken lightly. The team that you surround yourself
with could easily make or break the potential of success and be either the best
or worst decision you will ever make.
Here are some of the biggest pros
and cons of a partnering up to help ensure the one you get into will be as powerful as
Advantages of a
real estate partnership
always bring something extra to the table, such as capital, connections,
project experience, or professional expertise such as legal or financing. Partnering with someone who has
more experience can help you minimize your mistakes and money losses.
Extra Benefits: If you are the more experienced
investor in the partnership, you could contribute your expertise and time in
exchange for a portion of the proceeds. For example, real estate agents make
great partners because they can access real estate deals before they are
public. Real estate agents also have access to networks that include
homeowners, sellers and other investors, which can be helpful when you are
looking for good investments and possible partners.
Less Engagement: Whether you are a part-time
investor or doing it full time, you’re probably busy. A real estate partnership can be the perfect investment vehicle if you are looking for a passive investment.
Access to a network: Personalities of each
partner can combine to a greater level of credibility in meetings with lenders,
prospective tenants, and additional investors.
Cons of a real estate partnership
Sharing profits: Profits of the investment such
as monthly income, profits from the sale, and tax benefits must be shared among
the partners, limiting the potential profits for any one investor. When starting, outline very
clearly how the money is going to be divided.
Personality conflicts. These can occur due to different investment and management
styles, or partnership agreements that don’t clearly define who is responsible
for doing what, where, and when
Disagreements: Poorly written partnership
agreements can also result in a good investment going bad if responsibilities
aren’t clearly agreed on. Strains
in a real estate partnership can also occur if one partner feels they are doing
a disproportionate share of the work without getting an equal share of the
Risk of capital call: The need for partners to contribute additional funds can occur
if a project isn’t performing to expectations, or if one member wants to exit
early and demands to be bought out by the other partners
Lack of liquidity: By investing in a real estate
partnership it typically means your money is locked up in a long-term
investment. This means that you may not be able to sell the property when you
want to. This can be problematic if you need the money or want to reinvest it
No guarantee: While many people believe investing in real estate is
safer than the stock market there is no guarantee you will earn a profit or
even get your money back from your initial investment. Like the stock market,
real estate markets fluctuate, and renovation costs can go over budget, which
could impact your financial returns.
Forming a real estate partnership and
buying property together can be a great way to scale up your own portfolio and
take your real estate business to the next level. If a partnership is going to
help you get your income and investment goals to the next level, go for it.
Surround yourself with the people you
aspire to become and
you will find partnership opportunities everywhere. Just don’t pursue every
deal you see. Do your own due diligence depending on the amount of money involved.