As a real estate investor, we bet you have come across someone who advised you or even offered you to get into real estate investment partnerships. In such a situation, the first thing that comes to mind is whether this is a good idea or not. That is exactly what we are going to be talking about in this blog.
Real estate investment partnerships might be very rewarding. They could bring about great advantages for both you and your partner/s. However, first, you should also take a look at the other side of the coin. Investing in real estate with a partner is advantageous only if thought out and managed well. Otherwise, the consequences might be disastrous for all parties.
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So, let us dig into the pros of real estate investment partnerships first, and then go straight to talk about the cons of such partnerships.
The pros of real estate investment partnerships
More resources
Real estate investment partnerships can bring together different resources. By that we do not only mean financial resources, but also knowledge and skills. Sometimes, a real estate investor might have the background knowledge and the skills to invest in real estate. However, he/she might not have the financial resources. In this case, investing with a partner who has the money to invest is the ideal option. Another example is someone who has great deals but lacks the finances or does not qualify for a loan. But keep in mind that the lack of resources does not always mean that investors only lack money to invest. It could be the opposite. Someone who has the finances but does not have what it takes in terms of knowledge about real estate. So, they would be looking for someone to partner up with who could provide them with what they lack.
Division of risks
Just like any other business, real estate investing is prone to risks. Sure enough, when getting into real estate investment partnerships, these risks are divided among all parties. Real estate partners only handle risks according to their shares. So, instead of you handling the risks alone, you get to split them with your partners. This makes it easier for the parties to take further action into improving and growing their business.
Split tasks and accountability
Investing in real estate is associated with many tasks: From property management through financial records to managing tenants or renters and many other tasks. These could be hard for one person to manage, especially, if he/she has multiple investment properties in his/her profile. So partnering up is of great help in this case. Real estate partners could divide their tasks so that each party is responsible for something specific.
On the other hand, real estate investment partnerships mean also shared accountability amongst partners. They all hold accountability for their decisions and therefore their actions. It is always a good idea to have extra sets of eyes watching the real estate investment business and making sure that all tasks are accomplished according to plans. It could also help with double checking the analysis on the investment business. Some mistakes could lead to disastrous consequences for all parties, so double checking is a great aspect of real estate investment partnerships.
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Expanded network
As you might know already, the real estate investing business is all about networking and making connections. So, real estate investment partnerships provide you with the chance to expand your circle of connections. They allow all parties to bring together their networks and connections, therefore, expanding their business opportunities.
The cons of real estate investment partnerships
Less profit
When working with a partner in real estate, you have to understand that you will not be making the same amount of money as you would if you were alone. There are many different types of real estate investment partnerships. You must know what kind of partnership you get into in order to know how much you will be making. There are 50/50 partnerships, which means you will be making 50% of the overall cash flow. You could even get into a 30/70 partnership, in which you get 30% of the cash flow. You might make even less if there is more than just one partner. So, you have to be ready for that; otherwise, you should invest alone.
Dealing with taxes
With real estate investment properties, dealing with taxes might get more complicated. In other words, when investing in real estate alone, you take 100% responsibility for paying taxes. On the other hand, in real estate investment partnerships, it might get more complicated in terms of splitting the tax responsibilities amongst the real estate partners when the time for paying taxes comes. Therefore, this is another aspect that adds to the list of things to consider when investing in real estate with a partner.
Controlling the business
Well, when investing in real estate solo, you get to control all matters that have to do with your investment property. You get to control the property, the finances, and the plans and goals that are set for the business. Moreover, you get to make decisions without having to consult others. However, the problem with real estate investment partnerships is that you simply can’t do that. You do not have the right to control the business or take decisions on your own. You have to talk to your real estate partners and discuss every single step with them.
This, of course, leads to another downside of real estate investment partnerships: disagreeing. You might have the best ideas to improve your real estate investment business. However, if your partners do not approve of it, you can’t say anything and, most importantly, you can’t do anything about it.
Leaving the partnership
Leaving a partnership is a nightmare for some real estate investors. If suddenly one of the parties decides to leave the partnership, it could lead to some damage for the other parties. You might be forced to sell the investment property in order to split the shares. That is, of course, unless you have the money to buy the leaving partner’s shares and save the business.
Related: How to Avoid Problems Arising From Real Estate Partnerships
Bottom line
After viewing the advantages and disadvantages of real estate investment partnerships, you are left with the choice. We can’t make the decision for you in this case. It all depends on your circumstances. But keep in mind, whatever decision you make, you should always have a backup plan in case things go wrong. Generally speaking, if you manage to find a real estate partner who is trustworthy and has something to offer that you do not have, then go ahead and partner up with him/her. You never know what opportunities are awaiting that could lead to a massive success in real estate investing for you and your partners.
For more advice on all aspects of real estate investments, keep reading on Mashvisor.