Thoughts On Starting A Partnership
I would appreciate thoughts / ideas from investors who have experience with working with partners.
I am currently in the planning stage of forming a partnership with 3 other investors. We all have varying experience with real estate transaction, but none of us have purchased property for investment purposes. We want to pool our resources together to help minimize risk, somewhat allocate leg work, and to be able to move into buying commercial property quicker.
There are two areas which I am currently concerned about.
1.) Two of us are in the same city. One is about 200 miles away and another about 500 miles away. Is it feasible to form a partnership when 2 of the investors are in totally different areas? Any suggestions on how to work out profit sharing between money & time invested? (i.e. some investors might be doing more leg work than others)
2.) If we can get past the logistics above we will need to decide between generating equity immediately versus consistently over time. i.e. rehabbing and renting versus rehabbing and selling.
I would eventually like to own a couple apartment complexes. But to start out I was thinking we could rehab residential properties and use the capital to move into other arenas from there.
Any thoughts would be appreciated. Thanks in advance
-wayne
I would say yes to the partner ship.
Your away from oneanother, but this means you can hit other markets also, and with other markets, more leads, and more people to meet to give the inventory too etc. Also, less risk you will be taking in on each property.
[addsig]
Two things...
You may be increasing risks rather than reducing them. Make sure your partnership agreement or corporate structure deals with all the unexpected issues (death, buy-out options, management control, etc).
You may want to partner on a deal by deal basis. This can keep things simpler.
When it comes to lenders you will find that they do not like the complexity. They also will use the worst credit score for the bunch. If you create a corporation then the company will have to pay more to get a loan when compared to an individual.
Overall the idea is not a bad one but you need to recognize that you might not receive the benefits you are first expecting.
As mentioned before, do the partnership on a deal-by-deal basis.
Some people will always do more/less work than others, but that can change for each deal. Likewise, the way everyone is compensated in the deal should vary for each deal as well.
Get everything in writing BEFORE doing any deal. Spell out who is doing what, how each person will be compensated and when. List what happens if someone fails to hold up their part of the agreement. Use examples to further clarify your point(s). Have the agreement signed by all and notarized.
I personally steer clear of partnerships whenever possible. Not everyone conducts business the way I think it should be done, and causes more harm than help. If your partners are friends of yours, I'd be sure I was doing the right thing. Have you worked with them before in some professional capacity?
Just my $0.02.