Amongst other things, successfully scaling a real estate investment business requires smart capital, and one of the most common ways to secure capital is by establishing strategic partnerships. Aligning yourself with the right partner(s) at the right time can yield a capital infusion, an expanded network, and more brains working towards the same goal, giving your business the boost it needs to grow. On the flip side, an ill-conceived or poorly structured real estate investment partnership can cripple your business or even set you back.

This article speaks to the benefits of real estate investment partnerships, as well as some best practices to observe when seeking partnering investors.

 

Real Estate Investment Partnerships: Quick Facts

  • An investment partnership can yield access to a larger network, a combined portfolio, an alternative perspective on potential deals, and more hands-on-deck to achieve common goals.
  • Before taking on a real estate partnership, it’s important to evaluate your needs. What you stand to benefit from a partnership must outweigh any possible risks.
  • It’s critical to vet prospective partners before entering into an agreement. Vetting involves doing preliminary research—looking into their web presence, marketing materials, and investment track record—in conjunction with face-to-face interactions.
  • When structuring terms for a real estate partnership, prioritize clarity and consult a lawyer to ensure your agreement is legally binding. Your terms should clearly delegate profits and losses and state how losses will be divided should one partner decide to leave the partnership.
  • Have a non-disclosure agreement (NDA) in place if you’re dealing with sensitive information, such as financials and exclusive acquisition opportunities.

 

Benefits of Real Estate Investment Partnerships

  • In addition to a capital infusion, an investment partnership can mean access to an untapped network.
  • Taking on a strategic real estate partnership is a great way to supplement your own knowledge as an investor and compensate for any knowledge gaps.
  • Combining portfolios from more than one investor can be used as leverage when meeting with prospective lenders.
  • Multiple investors can provide fresh perspectives on prospective deals and more hands-on-deck to divide and conquer responsibilities and workload.

 

Identify Your Needs

Before investing your efforts in a partnership, it’s important to first know, without much doubt, that you can benefit from one given the current stage of your business. Engaging in real estate partnerships, while potentially advantageous, can also open you and your business up to liabilities that you weren’t privy to before. In that sense, the possible benefits must outweigh the possible risks.

The right time to look into a partnership is when (a) you need the capital and you can’t get it anywhere else, (b) you’ve tapped your own network and could benefit from the network of another, or (c) you are hitting a wall in terms of your knowledge and experience base and you could benefit from guidance and a new perspective.

Establishing successful real estate partnerships is all about finding a good match, so once you know what the current and future needs of your business are, as well as what you and your business’s strengths and weaknesses are, you will be better equipped to vet prospective candidates.

 

Do Your Homework

In addition to someone who brings new knowledge and experience to the table, you want a partner who is reliable, credible, and you can feel confident getting into business with. Vetting involves doing preliminary research—looking into their web presence, marketing materials, and investment track record—in conjunction with face-to-face interactions. I’ve included some questions you should broach with prospective candidates below.

  • Can you walk me through your past experience as an investor or real estate partner?
  • Can you walk me through any deals you are currently involved with?
  • Do you have current or past partnerships with other investors that would be willing to provide a referral?
  • Are you presently dealing with any legal suits or have you in the past? If so, what is/was the nature?
  • What kind of availability do you have to work with me on this deal, including face-to-face, if necessary?

TIP The personality of your partner matters! Keep in mind that you will not only be communicating with this investor regularly, but you will have to rely on them. When vetting prospective partners, make sure the personality and work style of the investor you choose to work with will mesh with your own.

 

Setting Terms and Expectations: Dos and Don’ts

  • Delegate profits and losses. In other words, what portion of profits are to be given back to the business, and how leftovers will be divided amongst the partners.
  • Have your written agreement looked at by a lawyer so that it becomes a legally binding contract.
  • Consider a silent partnership, which will allow one party to be the primary decision-maker when it comes to non-major decisions. Having two parties weighing in on non-major decisions can become extremely time-consuming. That said, major business issues should always be discussed with all investing parties. Make sure you put the decision-making split in writing.
  • Consider hiring a third-party bookkeeper to limit potential conflicts between you and your partner(s) in the future.
  • Have a non-disclosure agreement (NDA) in place if you’re dealing with sensitive information, such as financials and exclusive acquisition opportunities.

  • Leave anything out of the written contract. For example, if one party is taking charge of marketing, while the other will take on day-to-day operations, put it in writing.
  • Overcomplicate your agreement with unnecessary legal jargon. Above all else, prioritize clarity when putting together your terms.
  • Consider what will happen should an irreconcilable conflict arise in the future. Your agreement should protect all parties in the event there is a disagreement in the future. The terms should clearly state how losses will be divided should one partner decide to leave the partnership.
  • Reveal sensitive information until you have a non-disclosure agreement in place.