Are Partnerships The Sickest Way to Buy & Investment Real Estate? Or Are They Just Drama?

Are Partnerships The Sickest Way to Buy & Investment Real Estate? Or Are They Just Drama?

 

Creating investment partnerships is one of the most powerful strategies to buying cash flowing properties for short and long term gains. When two or more people join together, to spread the risk, add their experience and gain sweet returns from purchasing property, a partnership takes place.

Partnerships can quickly to go down the toilet but keeping these critically roles and structures in the forefront of your mind you can safely navigate the shark infested waters to get to the land of milk and honey!

The Players:

  • The Deal Marker – This is a mover and a shaker. Someone who is putting their boots to the street, finding deals, making offers and negotiating the terms. As Donald Trump put it “doing deals is an art form”, being able to successfully build a relationship with a seller and negotiate terms that have everyone involved smiling from ear to ear is truly an art form.

 

  • The Money Man- Sometimes also called Uncle Money bags or Assetsgalore. This role is best played by cash and or asset strong folks that are looking for secured investments, love real estate but do not have the time, energy or expertise to make these opportunities successful. They prefer to sit back, pick the right deal to invest in and sit back & cash the checks.

 

  • Mr. Experience- This superstar has been through the ups and downs of real estate and business.  You can often find this role also played by The Deal Maker. Their main focus is after the sale. How to roll in new property management, what capital improvements to complete and so on. You can often find a CPM (certified property manager) to fill this role as they have the experience and training. That is if you are buying apartment buildings or commercial real estate. (If you are not buying these types of assets then you need to have your head checked.)

 

These partnerships can be between friends or even strangers. If the partnership is a match, then the partners can learn from each others mistakes, draw on their partner’s strengths and making up for the other person’s weaknesses.

Another pitfall to take note of and which must be addressed upfront in structuring your partnerships are that your assets and liabilities are at stake. These are not easily divided or liquidated. So everything in the partnership should be in writing and reviewed by a good lawyer. There are certain steps to take care of though; a partnership agreement must be drawn and the general partners and the limited partners must be specified. Even the return on investment and terms are typically documented in the agreement. Some agreements also have an ethics and morality clause. If you don’t you could find yourself broke, busted and disgusted.

Limited partners are those that are responsible only for the investment debt of the amount they have invested, that is, they cannot lose more than they initially invested. However, they do not have any authority over the investments and the daily working required in case of owning the property.

The benefits for the limited partner are tax shelters, returns on investment and very little involvement in the working aspect of the partnership. While the general partner, has advantages like possibly a zero investment, but even so getting a return on the investment made by the limited partners and largely being the on responsible for way the agreement turns out.

Since the general partner has more responsibilities, he also gets more control over the entire investment.

While it may not be hard to create partnerships to buy investment property, it does not always have great results. If the partners in place have no trust in each other and if any clause in the agreement is violated, then the whole deal may turn sour. Having everyone on the same page from acquisition to exit strategy must be in place from day one.

I hope all investors will see the true power of partnership and explode their wealth through one of the oldest investment vehicles of all time, investment properties.

Daniel D. Dawson

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181 Comments

  1. Great little piece, so you wanna do some biz in LA?(lower Anold)
    I need to jump out of my comfort zone, broker for an investor. For 16 yrs I’ve been living on 3%, I’m not getting any younger so this needs to change;)
    I’ve got a nice little office set up on Jeffco, next to Walgreens.
    Time to shake it up for 2011. Let me know if you want to explore.
    Thanks and have a great new year! Connie

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