Bringing on a partner for real estate deal can can be one of the best decisions you’ll make – or the worst. Should you think about doing it?
You finally found a great deal. But the lender wants you to have great credit and yours isn’t so good. Or the lender wants you to bring significant cash to the table and you don’t have that kind of money.
Instead of walking away, why not bring a partner to the deal? After all, it’s better to make a deal and split the profits than it would be to come away with 100 percent of nothing.
Business partners can be great. You want to take on partners on a deal-by-deal basis only. Bring on a partner to add what you can’t bring to the table. The partner can help you acquire properties and the two of you split the profits.
A partner can increase your income pool and allow you to invest in properties you might not otherwise be able to afford. Working with a partner can give you access to knowledge and expertise beyond your own skillset, and help lighten the workload involved in turning a property.
On the other hand, a partnership that goes sour can easily blow up in your face. You can wind up with a bevy of legal bills or a property you’ll never be able to sell. So while a partnership can certainly be favorable, you need to be selective about who you choose to work with.
Here are a few tips to help you in that regard.
- Seek someone with common goals. How quickly do you want to turn a profit on your properties? What sort of renovations do you want to do, and where do you want to invest? Find someone whose answers to these questions are the same as yours.
- Lay things out in advance. How are you going to split the work? How much money will each partner put in, and how much of the profits will each partner take?
- Stay fair. If you’re going to work with someone else, be fair in how much of a return they’ll get. Don’t try to take a huge chunk of the pie for yourself and leave them with only scraps. And don’t put someone else’s money into a deal you wouldn’t invest in yourself – that’s just bad business.
- Trust your gut. You should treat the search for a partner the same way you’d treat the search for a contractor. Perform your due diligence and make sure they’re totally above-board. And if, after meeting them, you’ve a bad feeling in your gut, trust it.
So, is working with a partner worth the extra effort? Yes — if you can find a partner you can work well with, and if you take on a partner for one deal at a time. Choose wisely, set your agreement clearly and work fairly — and you can expand your profits, one deal at a time.
About the Author: Armando Montelongo, Jr. is a real estate mogul, mentor, philanthropist, and speaker. As the CEO of Armando Montelongo Companies, he specializes in real estate investing and teaching his students how to strategically invest in residential and commercial real estate. Through these courses, he helps students positively transform their lives. Follow his blog at ArmandoLive.com.