Property Partnerships A Good Idea?

June 28, 2011 Hans Anderson United States Foreclosure Articles, 2

Wendy Patton does a great job writing about property partnerships in her article titled “Partnerships for Real Estate Investing”

Partnerships? Who me? Yes, you. They can be very profitable!

Entering into partnerships can be a very lucrative decision for real estate investors. (foreclosures.com/pages/mastering_deals.asp?AffiliateID=99279537744&BID=21">Seven-Steps to Mastering foreclosures)A partnership’s definition is a “legal relation existing between two or more persons contractually associated as joint principals in a business.” In real estate, partnerships can be used for many applications. If you have time, knowledge or money, then you are a perfect candidate to partner with someone with different qualifications.

Say you have money, but don’t have the time or knowledge, there are many investors who have time and knowledge, but don’t have or they are out of MONEY! If you have money, time and knowledge then you don’t need to partner, but most of us don’t have them all, or don’t have them all, all of the time(foreclosure Training). Therefore, other solutions can give us more flexibility for buying properties. Partnerships are one solution to this situation.

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Let’s talk about how a partnership can work in lease options. Say I find a good home that would sell for a good profit on an option, but the seller can’t sell to me on an option. They must have their cash out of the home, therefore, you have to pay cash or get a mortgage to make it work for the seller. If you don’t have cash and can’t get it, why not partner with someone who has the cash? Isn’t half of a good profit better than zero? And on the other hand, the person with money may not have the time to find or manage a property, but they would like to get in on real estate investing. (foreclosures.com/lists/">foreclosures.com Lists)

In this case, the person with the money would be responsible for paying cash for the home (with a reasonable interest rate on that money) or acquiring a mortgage for the home. The partnership pays the mortgage payments with the rent received from the home. When the tenant/buyer exercises their option, all profits are split or rolled back into the company for the next property. Partnerships are flexible and can be worked any way both partners agree upon.

Picking a partner is important. Many good friendships end over business, so be careful who you choose as a partner. A good friend is not worth losing over any amount of money. If you are the money person, you want to pick someone that is aggressive, detailed on record keeping, honest, fair, trustworthy and experienced. If you are the manager of the property, you want a partner who has money, is honest, fair, easy-going and most of all, hands off. They must trust you to do your part of the partnership.

Create a legal partnership agreement. All details of how the partnership will work, should be worked out, documented and signed prior to any business transactions being started. Go through your plans together. What do you want the partnership to do? What happens when things don’t go well? Go through worse case scenarios and make sure that all of your solutions are worked out before they happen. What happens if the well goes out and it will cost $3500 to fix it? What happens when the tenant doesn’t pay the rent and he knows the system and gets the judge to extend their time before eviction, and then damages the home severely? What happens when you have to go to court? Who will represent you?

I use LLCs- Limited Liability Companys for my partnerships. Having an attorney draft the operating agreement is a very good idea. Both my partner and I review the documents. When we get all of the changes or corrections made, we both sign 2 copies. One copy goes to me and one copy goes to my partner. Talk to an attorney before you start a partnership. Poor communication and lack of documented procedures is the number one reason why partnerships have misunderstandings. Misunderstandings cause hurt, fear, and disappointment, all of which bring partnerships to ruin.

I currently have many partners that either do the money end of the partnership or “bird-dog” for me. Bird dog partners are ones that find the properties and many times manage them as well. Many successful investors have partnerships with multiple people. Partnerships create synergy. With synergy you can do more than you could by yourself. For example, by myself I might only be able to purchase four homes this year.

With a partner, I might be able to purchase ten homes–more than double what I can do myself–therefore, synergy is doing more than twice as much together as you could do alone. So, why not partner? foreclosures.com/pages/mastering_deals.asp?AffiliateID=99279537744&BID=21">Seven-Steps to Mastering foreclosures

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