A real estate partnership can either go exceedingly well or disastrously wrong. Partners who are well prepared for the realities of real estate investment and have taken the time to lay the groundwork for a partnership tend to have a much greater chance at succeeding at their investment goals. However, far too often partnerships are formed without adequate planning and those partnerships can lead to problems that may ultimately result in a termination of the partnership and a financial loss for one or both parties. To make a real estate partnership work, follow these essential guidelines:
Strengths and weaknesses
Everybody has strengths and weaknesses. A real estate partner should excel where the other partner may fall short. For example, one partner may be the outgoing and sociable type and would therefore be excellent when the time comes to market a property or to make an offer on an investment. In contrast, the other partner may be more of the introverted type and thus happier dealing with essential background issues, such as planning regulations. The problem, however, is that far too many people seek out partners who mirror their own strengths rather than make up for their weaknesses. Being honest about those weaknesses and finding a business partner to adjust for those weaknesses is an essential first step to creating a successful partnership. Also, avoid the mistake of partnering with somebody only because they are a close friend or because they have plenty of money to invest with since neither of those relationships address fundamental strengths and weaknesses that a real estate partner needs.
Have a written goal
Both partners need to be looking towards the same goal if they are to minimize problems and disagreements. Many partnerships break down because both partners simply assume that they are on the same page. Likewise, far too many real estate partnerships, especially those between friends and family members, are based entirely on verbal agreements. Verbal agreements are fraught with risks and a real estate partnership should have clear and concise goals that are laid out in writing. A written agreement should address not only the overall goals of both partners, including the amount they are willing to invest and what they expect to get in return, but it should also clarify each partner’s role and responsibilities.
Wanting to invest in real estate and make lots of money is a fine goal to have, but it doesn’t guarantee success. Research is key in real estate and that includes getting more info about local property markets, such as what a typical listing price is, who the most common buyers are, and what kinds of homes are selling. Additionally, there are plenty of factors that may get overlooked but which can be highly useful when it comes to maximizing the resale value of a property, such as government incentives for increasing a home’s energy efficiency. Each partner should be tasked with becoming an expert on a certain area of their investment. For example, one partner could read up on planning regulations while the other partner could research market trends in a particular locality.
A lack of communication is bound to doom any relationship and a real estate partnership is no different. Disagreements are bound to arise and, if addressed early on and in a respectful manner, resolving those disagreements can better ensure that the partnership is a success. All too often, however, one or both partners decides to keep quiet over fear of upsetting the other partner. In other cases, a person may think a disagreement is so minor that it doesn’t warrant risking a fight by bringing it into the open. Small disagreements, however, can quickly snowball into major problems, especially with so much money at stake. Right from the beginning, both partners should agree to sit down with one another on a regular basis (ideally everyday) and discuss how their investment is developing. Both partners should come to these meetings prepared with whatever concerns they may have. Having such meetings regularly set aside will help ensure that disagreements get addressed and resolved early on.
Real estate investing is exciting and can be an excellent opportunity to get ahead financially. While a real estate partnership can be the extra ingredient that makes an investment truly successful, such partnerships need to be approached with caution and preparation. The world of real estate investing is replete with stories of partnerships that began with plenty of hope and ended in both emotional and financial disaster. The strategies described above are key to making sure a real estate partnership ultimately leads to the success that anybody involved in the world of real estate investing is looking for.