Real Estate Partnership Structure
Real estate can be a valuable part of your investment portfolio. It provides asset diversification, a hedge against stock market and interest rate fluctuation, an opportunity for appreciation and, potentially, some tax benefits. However, owning a real estate business all by yourself and managing the smooth flow of the same can be quite a task and may lead to a lot of downfalls. While many people choose to partner with others to share the responsibilities and benefits of owning real estate, there are some who face more complexities while working with a partner.
Partners can bring cash to the table if you don’t have enough, they share the risk on a venture and can also provide mentoring or advice. A good partner, in Noted Real Estate Adviser Hirav Shah’s words, is someone who brings something to the deal that you don’t have. If you both have money but no idea what you’re doing, it will be messy. But if one partner has experience and the other has money, it’s a foundation for a solid partnership. If you decide to invest via real estate partnerships, selecting whom to work with and how you will invest with them is of critical importance.
If you want to form a long-lasting & working property partnership, real estate investment partnership, property investment partnership or real estate agent partnership, you may consider the following
10 Dos and Don’t s of a Real Estate Partnership as suggested by Hirav Shah, Celebrated Real Estate Strategist Cum Astrologer
1. Set common objectives
When forming a real estate partnership, both partners should share the same mindset. Partners can’t work in unison unless they agree on their important priorities. Having the same objectives deter disagreements and help real estate moguls cultivate long-term relationships.
2. Define roles and expectations
Before final commitment for being partners, you must pinpoint each other’s roles and responsibilities. Clarity in terms of objectives between the two mitigates the risk of conflicts and wrongful assumptions.
3.Communicate regularly and effectively
What partners do best is communicate. Promote a communication-friendly environment that’s conducive to brainstorming sessions, productive discussions, and even respectful disagreements. Keeping each other in loop on work in progress and further planning is essential for a healthy partnership.
4. Conduct a self-evaluation
Developing an honest opinion about yourself is equally important as evaluating your prospective partner’s reliability. Assessing your own strengths and weaknesses and how well you can work with another person as partners is important.
5.Put your agreement in writing
Identify who is responsible for decision-making, and what percentage of partners must consent to take different types of action. Include a procedure for dispute resolution. Specify what happens if a partner dies, becomes incapacitated, or wishes to exit the investment ahead of the other partners. Memorialize the parties’ initial capital contributions, and how future capital calls will be treated. Identify the frequency and manner of distributions of cash flow and capital event or refinancing proceeds. All these agreements including others should be put in a writing to avoid disagreement and manipulations later.
6.There should be a chief
Most partnerships are 50/50: Each partner shares equally in responsibility and profits. These rarely work. The most common problem with this is that one partner no longer feels their share is 50%. They believe they deserve more. And the partnership would be lucky if just one of the two felt this way. Many times, both partners feel they are getting shorted. Another issue is,not having a decision-maker. What if the two partners don’t agree?
7.Have a conflict-resolution system
There is always a chance for conflict. Build some conflict resolution plans into the agreement. Here is a thing you can do to help resolve any conflicts, like enlisting a third-party decision-maker.
8.Don’t rush to form a partnership
Take a good amount of time to consider alternatives before taking the leap. Don’t get blinded because of overly excited over the prospect of a partnership. Don’t lose sight of your goals. Only take the step to commit a partnership if it is the most viable alternative.
9. Don’t be unfair
Just because someone is ready to invest their time and money into you, this doesn’t give you the right to make things difficult for them and throw them in the deep end of deals coming your way. Always treat their assets with the same care and consideration as you will do for your own.
10. Don’t over promise
Do not promise huge, which cannot be fulfilled. This will lead to trust issues and de-motivation. It’s better to under-promise and over-deliver.
All said and done, the opportunities & positives, obstacles & negatives, of a Real Estate Partnership also need to be,very much kept in mind.
1.A real estate partnership structure allows both parties more flexibility when it comes to distributing profits and losses.
2.The right partner can bring extra resources to the table, including capital or an extensive network.
3.Partners can provide another perspective when analyzing potential deals and investments.
4.The combined portfolios from real estate partners can help bring the “wow” factor to meetings with prospective lenders.
5.Partnerships revolve around balance, allowing both parties to divide and conquer responsibilities and workload.
Essentially a good partner can bring something to the table you may not have at the moment, whether it’s access to capital or market experience in your preferred investment area. That said, partnerships are not meant for everyone.
1.Real estate partners may have very different management styles, leading to organizational conflict.
2.Earnings must be split between the partners, undermining profit totals.
3.If the partnership agreement is not entirely clear there may be issues delegating responsibilities (or losses).
4.Partnerships could place an unnecessary strain on an otherwise healthy friendship.
5.In some cases, one partner may bring more to the table creating a disparity in equity or skills.
Make sure you understand the “risk” in a Real Estate Partnership, Says Hirav Shah.
Have a unique understanding of the risks or the capability to manage the risks
associated with partnership.
The best way to create wealth and make a fortune through real estate is to decide on whichever strategy suits you best and be patient. As a wealth builder, real estate is incredible, but it does take time and you need to have discipline. Nothing happens overnight, Concludes Shah.