Is working with a partner the best way to get started in real estate?
Real estate partnerships, in their various forms, have been around for longer than you may have realized – and rightfully so. They serve a great purpose. They are often heralded as a great tool for enabling new real estate investors to overcome challenges and get into the business. Having said that, is partnering up right for your current situation? Who makes a good partner? What should you watch out for in order to avoid financial distress?
Getting Started in Real Estate
Investing in real estate is one of the best ways to get ahead financially, and to achieve more of your goals. However, that doesn’t mean it isn’t without its own challenges. It just so happens that partnering up can alleviate some of the initial challenges that may present themselves to new investors. Partnering up is great for those who fit the following criteria:
- Limited cash to invest in real estate with
- Taking on larger deals
- Credit challenges
- Mortgage loan requirements
- Fear of making a mistake
- Efficiency challenges
- Needing a track record to obtain financing
- Need to make a real profit quickly
- Time constraints
At the same time, there are certain partnerships for individual situations. They include, but are not limited to:
- Real estate stocks and REITs
- Investing as part of a group in a Limited Liability Partnership
- Real estate crowdfunding
- Fractional ownership
- Lending money for real estate projects through a third party platform
- Partnering up with friends and family
- Teaming up with other local investors to take on a deal
- Working for another more experienced real estate investor
- Turnkey real estate investing
Partnering up is a great way to leverage experienced pros and others’ assets while you learn the ropes of real estate investing.
Be Careful About Who You Partner Up With
Just because partnering up can be a great power move doesn’t mean that every potential partnership is a smart one. Partnerships can be a major minefield if you are not careful. The real estate industry is littered with partnerships gone wrong. Watch out for:
- Personality and value differences
- Partners making unsustainable commitments or with unsustainable finances
- Shady characters
- Potential frictions with partners if things don’t go right
- Unreasonable splits in profit and risk
How to Choose a Real Estate Partner
- Start by identifying what you want in a partner, what they should bring
- Clarify what you can bring to the table, and not
- A match in values, style, and goals
- Has a good reputation
- Has a good track record
- Shares a similar timeline as you
Cycling Partnership Relationships
There are a few cases in which you may stay in a partnership for a long time, or repeatedly team up because it works in everyone’s favor. However, it is also smart to set boundaries, diversify, and to keep upgrading and expanding partnerships. Always use written agreements and include timelines, even if you are just partnering up with close friends and family. Spell everything out in black and white, as to avoid any confusion.
No matter how great existing partnerships may be, understand the need for diversification, and constantly adding new partners. Consistently look for more sustainable partners, and ones which will elevate you to the next level. Few will just stay as they are. They are either growing or not. Which would you rather be a part of?
It’s also important to be prepared for when things don’t go well. However unlikely it seems; multiple partners can leave you hanging when it matters most. A property management partner, financial partner, and others might face personal issues and disrupt your deal without warning. If you have others relying on you, you may have to step in and take over. Make sure you have a plan for what comes next.
There are many benefits of partnering up in real estate. You can start as a small private lender, property scout, or acquire turnkey rental properties. Just know what you want out of the deal, and what you can add. It helps to know what to look for and avoid in potential partners.