A real estate partnership is formed by two or more investors who combine their capital and expertise to purchase, develop, or lease property. Partnerships are built around the partnership agreement, with agreements different from one real estate investment to the next. However, before forming a real estate partnership, it’s a good idea to involve a trusted professional who is familiar with corporate formations and partnerships, such as your real estate attorney or financial advisor, to help avoid problems once your real estate partnership is up and running. In this article, we will take you through the 5 secrets to successful real estate partnerships.
Good Relationship
You should be building lasting business relationships with those you partner with, not just one-time contracts. This means you should make sure your terms are attractive to your partner, and absolutely DO NOT ever take advantage of someone who does not know real estate.
Your reputation is everything, and the last thing you want to do is destroy that reputation by chasing a better return at the expense of a business relationship
Clear Terms
No matter the partnership, make sure you draw up very clear terms that discuss the different outcomes and aspects of the relationship. Who is responsible for what? When and how often do you get paid? What is the exit strategy? It doesn’t matter how long you’ve known the person; draw up the terms and put it into a contract so there is no emotion to it.
Funding Source and Requirements
Consider your funding source and requirements. When using a bank for a loan on a property, the bank will often (always for a conventional conforming mortgage) have specific requirements for the source of your down payment funds. They must either: be in your account for two months, or come from a person who is also on the loan.
In order for a money partner to work if they don’t want to be on the loan, you often must utilize a commercial or non-conforming loan product where the funds don’t need to meet those requirements.
Don’t Be Afraid to Ask
If you have any questions about partnerships vs. syndication, speak with an attorney. The last thing you want is to have a partnership go sideways because you improperly and unknowingly formed a syndication.
Plan For All Outcomes
Talk to your partner about what happens if the deal doesn’t close. Due diligence is a critical time where a significant amount of money can change hands for appraisals, inspections, contractor walkthroughs, etc. What happens if the deal doesn’t close? Who is responsible for those funds? Make sure you have a plan!
