As an investor, there are many ways to partner with others to put together deals and increase profits. The key components of any real estate investment are the seller, the buyer (investor), the property, the source of funds, and when you are flipping, the end buyer. As the buyer/investor, your role is pulling all of these resources together into a specific deal. However, you don’t have to do that all by yourself. Formal and informal partnerships can leverage your investment business.
Real estate investment partnerships can be very complex or very simple. One of the simplest ones is an interest only loan. As an investor, you bring in a funding partner by agreeing to an interest rate, the length of the loan, and the security (usually a first mortgage on the property). Outside funding could come from your own network if you have a history of successful investments. However, you have many other sources worth considering. The home mortgage industry has evolved to include an almost endless source of funding. A little searching on your part will reveal everything from crowdfunding, to hard money lenders, to individuals investing their 401k retirement accounts. Some are silent partners and others want a more active role.
A more complicated funding partnership can be a profit sharing arrangement. Writing a contract for a profit sharing arrangement has many variables. You may chose to write up a contract for a single property that details the specifics about how the profits will be shared. Or you could enter into a Limited Liability Company that oversees multiple investment properties and again details how the profits will be shared.
Partnerships certainly don’t have to be 50-50 split. If, as the primary investor, you’re doing most of the legwork, you’re entitled to a higher percentage of the profits. You’re doing all of the research to find discounted properties, negotiating the sales terms, overseeing the remodeling, and finding an end buyer. You may even be putting down earnest money and/or providing part of the purchase money. Under some or all of these scenarios, you’d certainly be entitled to a higher percentage of the profits.
Reasons why you want a partner:
Issues to be concerned about:
Good times to consider partners:
The most common problem that comes with partnering on real estate deals are the legal aspects. It’s highly recommended that you check out the credentials of new investors as much as they check out yours. Also, have a tightly written contract, partnership agreement, or LLC agreement and attach it to the title of the property to prevent a money partner from taking out another mortgage or selling the property out from under you. Both partners need to be prepared to revise agreements as the partnership matures and new experiences are encountered.
Please comment about your real estate investment partnering experiences.
Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to firstname.lastname@example.org.
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