7 Obstacles You May Face with a Real Estate Partnership

June 8, 2017 by Michael Brown

Two businessman connecting puzzle pieces togheter with copy space
When you’re low on cash or new to the real estate industry, investing with a partner can be a savvy solution. The two of you will pool time and monetary to create a stronger business.Such a partnership often results in a more feasible and profitable investment than you could have managed on your own. It also cuts down on your time investment. Being able to divide the many time-consuming tasks between two capable people can take much of the stress out of a real estate project while maintaining a strong revenue stream.

Although there are many benefits, no partnership will be perfect. Often, you might go into business with the wrong person or face a series of obstacles that make partnerships challenging.

This shouldn’t dissuade you from entering a partnership, though, especially if it means you’ll make more. Instead, you should go into it with eyes wide open and some idea of how to handle the challenges that come your way.

  1. Conflicting Decisions

Though you’re both interested in using property for profit, you may have completely different ideas about how to do it. The two of you may go head to head with conflicting ideas that bring progress to a standstill.

To avoid serious conflicts, use better communication. Make expectations about realty deals clear from the start, and choose a partner whose methods and goals most closely align with your own.

“Carefully plan the arrangement and constantly communicate,” says James Vermillion, Kentucky real estate investor, about the complexities of real estate partnerships. “If both partners remain committed to the business, you will likely develop one that is prosperous for all parties involved.”

  1. Slow Decisions

Whether you disagree on something or not, decisions often take longer when two parties are involved. Often in real estate, you’re required to make quick decisions to land a deal or close negotiations, which is more difficult when you have to run everything past a partner.

There are a couple of ways to get around this, the first being open lines of communication. Be prepared before going to a meeting: have your main goals laid out and possible answers to certain scenarios. When you go into a meeting and your partner can’t be present, arrange a way to the person quickly and easily.

You might also consider giving one member of the partnership the primary decision-making power, so the other becomes a silent partner. Both partners will outline their preferences and make any extenuating circumstances clear, but only one will make on-the-spot decisions when the need arises.

As long as you’re keeping strong lines of communication open, you shouldn’t have a problem coming to the right conclusions.

  1. Legal Responsibility

There’s always legal risk in partnerships. If you aren’t careful, you could be liable for the actions of your partner. If the other person makes a decision that potentially is against the law or breaches a contract, it could fall on you, and put you at risk for a fine or worse.

Such legal repercussions will only occur, however, if you haven’t set up your partnership with a strong legal structure. “It’s important to be smart legally with the partnership,” says Ali Boone, an experienced real estate partner. “Spell it all out so there is no question later … You can do this type of legalese with an LLC or a legal real estate contract, etc. But do something.”

A real estate attorney can help you draft partnership agreements that protect you and your interests. Because your partner will need protection as well, there should be no objection to such structuring.

  1. Contention

It would be pretty miraculous for a real estate partnership to avoid any arguments. There will be personality conflicts and disagreements that can make the partnership trying at times.

However, you want to avoid constant disagreements with your partner and serious conflicts of interest that would damage your relationships with clients and result in falling profits.

Minimize this problem by choosing the right partner at the start. Several criteria make a strong partnership:

  • The parties bring something equal to the table (i.e. stable income, skill, etc.)
  • Complementary, but not exact personality match
  • Defined roles within the partnership
  • Same long- and short-term goals
  • Similar beliefs, morals, and values
  • Open lines of communication

Screen potential partners carefully before going into business. You may even do a test run to make sure your personalities won’t clash, and you’ll be able to do business without personal inhibitions.

  1. Smaller Profits per Project

Naturally, you’ll make less on each real estate investment when multiple people are involved. The price of a property doesn’t double just because there are two people selling it, after all.

However, this shouldn’t dissuade you from a great partnership. Often, investors choose to partner up because they’re unable to land high-value properties on their own. Not only can they obtain more investment properties, but the ones they get may also be worth more, which puts more in their pockets.

  1. Potentially Ruined Friendships

It’s not uncommon for Realtors to get into this business with friends and family. Sometimes it can end happily, and the partners make money and remain friends for the rest of their lives.

In other cases, such close-knit workings are the death of the relationship. You mustn’t let personal feelings get in the way of making business decisions, but when you’re close with your partner on a personal level, it’s hard to avoid that.

Unless you’ve done business with this friend or family member before, you may want to nix the notion of doing business with people you’re close to. If you decide to do it anyway, put all the basic expectations in writing.

That way, when something unexpected happens, you’ll have an action plan to handle it without making it personal. You should also create clear exit strategies for each partner. That way, if you choose to value your personal relationship over the business, it can still be salvaged.

“Before any agreement is made, make sure all parties know what will happen if the partnership ends prematurely or one party cannot continue their commitment,” says Mark Ferguson of Invest Four More. “Once again it boils down to having everything in writing, how many hours of work are expected, how profits are split, what happens if one party can’t continue…. It is essential to have these discussions in order to avoid a disaster.”

  1. Confusing Taxes

You know that taxes for an individual Realtor are complex. Well, they’re twice as complicated with a partner. Each new team member brings more intricacy.

There’s not a lot you can do to lessen the impact of tax season other than use a certified accountant to handle the taxes for you. You can also be prepared for the expenses.

You’re unlikely to receive a tax return in such a business, and even if you pay taxes on a quarterly basis, you may owe several thousand dollars when tax time comes around. Have some money saved up and be prepared to split the costs.

Contact Green Residential Today!

Realty partnerships can be intimidating, but they’re easier if you have the right people to help you build a strong structure. Our Green Residential team can assist with legal jargon, contract work, locating properties, and boosting your profits. For more information about what our sales team can offer, contact us today!

Michael Brown

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