Partnership Property Investing 101

Do you have the right temperament?

If you have the personality type that works extremely well with others, doesn’t have to have “their way,” and can compromise in order to realize a common goal of higher profits – then partnership property investing may be perfect for you.  You’ll find it’s a great way to finance investment property.  In any business partnership, there will be several key basics you’ll need to understand in order for the concept to work well.

The basic partnership agreement

You’ll need to fully delineate in a formal partnership agreement what each partner is responsible for – that is, who will do the scouting ,searching and locating of properties, who will do the negotiating, who will do the legal work, who will proscribe the repair work to be done, who will do the budgeting and accounting, and then who will actively manage the property.  This part would include finding tenants who are qualified, collecting rents and making all necessary ongoing repairs and maintenance.  Also spelled out should be who will receive tenant emergency calls, as well as make rent collections.

Of course, ultimately, there needs to be a decision process created and set down in writing.  In addition, a plan detailing how much capital in total each partner will be putting up in this new enterprise, as well as whether all the partners will have equal shares or not will need to be laid out.  You may all decide all the partners would like to participate in the locating of potential investment properties for the group to acquire.  That’s fine too.  Just make sure it’s written down exactly how you’re going to individually and collectively locate – and then actually decide – which properties to go after for purchase.

The grand payoff of a partnership

Using a partnership will allow you to create the seed money (that is, down payments) to bankroll either bigger projects, or larger individual projects than you could if you were investing on your own.  It’s truly a nifty way to help finance investment property.  Profits (or losses) will be shared pro rata amongst the partners.  And a good partnership agreement will also spell out the mechanics for when a partner wants to leave the company, when the other partners want to push a partner out, or how to add a new partner to the mix.  Certainly, each alternative requires a detailed written plan to avoid potential litigation down the road.

Creating synergy

Like with any business partnership,  you’ll be able to utilize your unique set of partners’ synergy, and make the whole greater than the sum of its parts.  You’ll be lessening overall financial risk in the process, whilst still maintaining the ability to utilize leverage on any property your company acquires and rents out.

If you don’t already have an accountant and/or a lawyer as one of your initial partners, then you truly must seek out their respective professional help in setting up the partnership, writing the partnership agreement, as well as creating a basic set of bookkeeping standards for you to follow.  Of course, if the partnership decides to hire a separate property management firm to  manage all its  acquired investment properties, then the property manager will be doing all the bookkeeping functions for you.  Certainly, a property manager will also remove all the day to day responsibilities for running your properties as well.  In the case of a partnership, a good property management company can really help free up the principal partners for the locating, financing and acquiring functions of the business.

Consider all the advantages

Again, partnerships are a good way to gain entrée into the world of property investing by lessening overall risk while still allowing for complete leverage of limited assets.  And the same real estate tax advantages will be afforded to the partnership as well.   Borrowing funds may be a bit trickier – but then again, all the partners’ separate income and assets will be considered in making a loan to the partnership.   But once a particular lender starts working exclusively with the partnership and writes all the mortgages, acquiring properties will become much easier than if you were to do so on your own since you’ll already have a strong working relationship with one banker.  As mentioned before, it can be a much more powerful way to help finance investment property.

 

photos courtesy of fairfaxcountypartnerships.org, thinkglink.com, accounting-financial-tax.com, blog.guidantfinancial.com, managementspecialistsinc.com, dmp.com