Real estate can be expensive, a lot of work, and difficult to acquire. Partnering with another investor can be an excellent way to break into the business or continue your portfolio growth. But before you grab just any partner, here are four factors you must consider.
What are your timeline?
When investing in real estate with a business partner important consideration is your investment time. For example, if you are age 55 and investing for cash flow to supplement your retirement, while partnering with someone age 35 who is investing for long-term appreciation and portfolio growth, this partnership may not work out. You may be looking to sell the property and cash out in 10 years while your younger partner may be looking to hold on a bit longer. Not to say that you can only invest with people your age, but this is definitely a discussion you should have from the start of your venture. Even business partners of the same age should have the timeline discussion.
What are your investing goals?
Are you investing for cash flow or appreciation? Are you looking to invest in the city or suburbs? Locally or out of state investments? Are you looking to be active or passive with your rental property? Are you looking to buy a couple properties or build a large portfolio? These are some of the questions you and your potential business partner should ask each other before putting a deal together. If you, for instances, want to self manage a couple multifamily homes, while your potential partner wants to purchase a 50 unit building in a neighboring state, there is going to be a disconnect down the road.
Is this an ethical person?
There are a lot of choices to make when dealing with investment real estate and you must know that your partner is making decisions that are ethical, moral, and within the law. Is he or she creating a win-win when dealing directly with a seller? Does he or she avoid discriminatory practices when dealing with tenants? Is he or she truthful when dealing with loan officers? The things your partner does or doesn’t do will directly affect real estate and relationship you have together.
What do each of you bring to the table?
Experience, cash, and time are the three big factors that any one partner can bring to the investment table. You may have one partner who has years of experience investing in real estate, but lacks the additional investment capital for the current deal. If you partner this individual with someone who has cash and wants to learn more about the business, this may be a match made in heaven. What are your strengths and weaknesses? What about your potential partner? Have this critical conversation early on in the process. One person brings significantly more to the table than another partner, this doesn’t necessarily mean the partnership won’t work. Maybe the equity ownership within the property is divided accordingly.