How to structure a real estate investment partnership

The way investors build a real estate partnership can directly lead to its success or failure. Therefore, this part of the process should not be taken lightly by any business partner. Read these steps about partnership structures and follow this process as you get started:

  1. Determine if the partnership is right for you
  2. Review your strengths and weaknesses
  3. Find someone who complements your skills
  4. Evaluate the potential of the partnership
  5. Clearly define roles and expectations
  6. Create the terms of the agreement
  7. Make the process simple
  8. Protect yourself from potential challenges
  9. Review business goals together

Decide if you need a partner

Decide, beyond any doubt, that you really need a partner. Many real estate investors like the possibility of partnering with someone else before even considering an alternative. And while I would never consider the idea that partnerships cannot be very rewarding, it does require careful consideration before committing to them. Having said that, I assure you that the only reason you should partner with someone else is because they bring something new to the table that you are currently missing. Perhaps they have access to capital or are more connected to the local community. Either way, state what you gain from the partnership and determine if the benefits outweigh the negatives.

 

Build your self-esteem

Structuring a real estate partnership is more than anything else about matching qualified candidates. However, many real estate investors spend a lot of time evaluating their potential partner, and they don’t spend a lot of time evaluating themselves. As it turns out, both are absolutely essential. In fact, I would argue that an impartial self-evaluation is as important as an interview with a candidate, if not more so. The self-assessment will identify areas that are currently lacking and which are strengths. At the very least, doing so will give you a great starting point when trying to find a partner. Only after you are confident in what you are currently putting on the table can you be sure of what to look for in a partner. However, it should be noted that this only works if you are completely true to yourself. Take some time to describe your strengths and weaknesses, and use what you learn to begin structuring your real estate partnership.

 

I am looking for the right partner

If for something else, the partner should have a mission of bringing something brand new to the table. And while it is entirely acceptable for your potential partner to share some unique skills that you already display, they should introduce a complementary skill. In other words, the partner you decide to call must fill a certain gap and fulfill a specific need. Only by adding complementary skill will your business become more flexible and ready to tackle the real estate market in the market.

Remember for appropriate diligence

Entering into a real estate partnership cannot be taken lightly, and you should not do so without thinking about things in an objective perspective. As I said before, you must make sure that you are entering into a partnership for the right reasons, but it is also important to choose the right partner. Not only do you have to supplement your capabilities to get the most benefit for you, but you must be someone you trust tacitly. When checking out your potential partner, it is vital that they can do their job well. Moreover, it is up to you to make sure that they can. You are the best goalkeeper, so make sure you feel comfortable with your partner being eligible.

Define roles and expectations

Before entering into a partnership, it is in your best interests to define what is expected of each individual and the roles they will naturally play. By doing this, you will mitigate the risks of facing big road problems. It should be noted that the more clearly you can define the role of each partner, the better. There should be literally no contradictions about the role you will play while participating in the business. Who will manage the financial affairs? Who will be responsible for marketing? Which of you will have the task of negotiating at the closing table? Partners will need to know who is doing what even before the situation arises. This way, you can set reasonable expectations for each partner.

Set terms

Once you have decided how to delegate responsibilities, it is time for a more complex conversation: Delegating gains and losses. All real estate investment partnership structures have a contract of some sort, outlining the exact terms of the business agreement. The joint structure will determine which portion of profits is given to the business and hence how the waste is shared among the partners. For example, the terms of your deal could be that 40 percent of the profits remain in the business and then split 50/50 between the partners after that. There are endless possibilities for the terms of the agreement, just be sure to find some that both parties agree on.

Take it with a smile
Avoid the complicated stuff when entering the current structure of your partnership. You should anticipate business operations, but you don’t need to schedule lunch breaks at this time. Remember to stay focused while negotiating and keep things simple (yet complete). At this time, it is also important to remember not to go over the legal jargon. Both partners need to clearly understand what they are getting into. Formalities are important to maintain professionalism; However, you need to understand exactly what you are going into. Work with a real estate attorney or legal team and use a language that everyone understands.

 

Protect yourself

You have worked at this point to create an ideal business partnership, but this does not guarantee that you will be safe from challenges. You and your partner need to take steps to protect yourself in case something goes wrong in the future. This means creating the right business structure to protect your personal assets, whether through KPS or something like that. Self-defense also means that you take the time to discuss what will happen during a potential business dispute. This includes determining how losses are shared, what would happen if a partner wanted to leave the company, and the business dissolution process. Each of these terms must be reviewed with a lawyer and put into a binding contract. While no one wants the worst case scenario to happen, you and your partner need protection if it ever does happen.

 

Set goals

Don’t neglect your potential partner’s long-term goals and aspirations. In fact, understanding what your partner wants from this exchange is invaluable, especially for startups. If nothing else, getting a clearer picture of what your partner wants from a close partnership can cause a mine to collapse moving forward. Having said that, you need to make sure that each of your goals aligns with each other. It makes no sense to partner with someone who has different goals. At best it will fulfill different aspirations. At worst, you can risk the entire company.

 

Summary

Real estate partnership is a great way to start your business. If you hope to partner with someone to take your career to the next level, then you need to be more confident that it’s with the right person. With the right partner, there is no reason not to expect your business to grow significantly. So make sure you take care of it appropriately and, above all, make sure the correct frame is in place.

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