Find out how to structure successful real estate partnerships right from the start, so you reap the benefits without the headaches.
Creating a real estate partnership can be incredibly beneficial. Whether it’s sharing risk, tapping into a wider pool of resources or expanding your talent pool, there are lots of lucrative reasons why partnerships appeal to real estate investors.
It isn’t all rainbows and unicorns though.
One of the main reasons that most people look to real estate investing in the first place is the sense of control and freedom you gain from going into business for yourself.
As a real estate investor, you’re also an entrepreneur with autonomy over your decisions and your income. So the question is: how do you gain the benefits of partnerships without taking on the hassle?
This article shows you 5 essential tips to creating successful partnerships in real estate, so you know how to structure your joint ventures to achieve amazing results without being ‘held back’.
5 Tips to Create Successful Partnerships
Partnerships are hard work, and it’s best to know how to avoid certain pitfalls from the get go. Use these 5 tips to create smarter partnerships so you and your partner can reap the benefits of joining forces to achieve more.
1- Keep it simple.
The first and foremost rule to successful partnerships is to keep it simple.
Sit down with your potential partner to go over your main goals and what each of you will bring to the table, so you’re on the same page. This way, you both know exactly what is expected. Don’t underestimate this part of the process because the last thing you want is to enter into a partnership assuming that you share a vision, only to find yourself in a frustrating back and forth.
2- Write the business plan.
Do I always write a business plan… heck no, there isn’t always time for that. But when it comes to a new partnership, you make the time.
Your business plan is the road map you need to generate growth. If it ever comes to a standstill or lack of communication with a partner, the other always has the business plan to fall back on to clearly see goals, roles and tasks. Your business plan is basically the follow-up from talking it out to establish your join vision that breaks your big picture goals into achievable steps.
3- Choose and register your partnership.
When you create a new partnership, it’s important that you and your partner pick and agree on a name together. This doesn’t have to a long drawn out process, just make sure that you both have input and pick a great name that aligns with your goals. Once you have your new name, be sure to register your business and make it official.
4- Create your partnership agreement.
You need a clear cut partnership agreement with the basic terms of your venture. A lot of people think that because your partner is awesome and maybe even a friend, you don’t… but this would a huge disservice to your business. Your partnership lays out how you spend the money, how partners are paid, how losses and profits are shared, who does what, and how much time is expected of each partner.
Be sure you include contingencies to have a plan B in place in worst case scenarios, or to address happens if a partner isn’t pulling their own weight.
5- Have an exit strategy.
You should always have an exit strategy in place, whether it’s your solo venture and especially for a partnership.
If things do or don’t go as planned, your exit strategy is your saving grace to get out with minimal damage and maximum profits.
A solid exit strategy includes how any joint assets would be divided, how profits and losses would be allocated and all the contingencies (i.e. what happens if a partner decides to retire, goes bankrupt, or dies).
The bottom line is that there are numerous ways to structure your partnership and it’s always going to depend on your goals and the nature of the partnership. Be sure to get some legal help for your final partnership agreement and take the time at the start to create a clear path for you and your partner.
This way, you’ve set your new business up for success with goals, tasks and a full contingency plan in place.