Partnerships are as old as business itself, which is just about as long as humans have been around. So there must be something about partnerships that work, that make it a good business move. Sophisticated real estate investors enter into all kinds of partnerships all the time because, chiefly, it can distribute the risk. But partnerships can also turn good friends into enemies pretty rapidly, especially when there’s a lot of money on the line as there is in purchasing real estate. So let’s take a look at buying real estate using a partner in Los Angeles, both the benefits and the drawbacks.
Benefits and Pitfalls of Buying Real Estate Using a Partner in Los Angeles
A partnership is one of the most powerful investment tools available, but it can also end in personal and financial disaster if not done right. So let’s briefly examine the benefits and drawbacks of buying real estate using a partner in Los Angeles.
- Reduces personal financial risk
- Allows you to spread resources across more investment deals
- Provides a way to get the capital needed to acquire more real estate
- Allows you to get better financing terms
- Allows you to enter into bigger real estate transactions
- Offers a good way to benefit from the experience and expertise of others
- Allows others to participate in your success
- You have to give up a great deal of control.
- You’ll be saddled with extra reporting and accounting responsibilities.
- No matter how well you think you know your partner, she may still turn out to be a rogue partner.
3 Essential Elements of Buying Real Estate Using a Partner in Los Angeles
For successful investing in real estate using a partner, you and your partner must have shared objectives and common goals. You have to be on the same page and traveling toward the same destination. For example, you must agree on the real estate investment model, and you both have to realize that this is a long game, not a ticket to overnight wealth.
PROVISIONS FOR END AND EXIT
What happens, for example, if you and your partner buy a small apartment building and then your partner falls on hard times and needs a big infusion of cash – that is, her share of equity in the proper? The three most common options are for you to sell, buy your partner out, or locate another partner to buy out your current partner. However you decide to resolve it, you need a plan in place ahead of time for just such contingencies. So before you get to that point, draw up a written partnership agreement detailing how you will go about valuing the property and what course you’ll take in such a scenario.
While you don’t have to provide your partner with a 200-page annual report every year or even a lengthy weekly progress report, you do have to ensure that you and your partner communicate regularly and frequently. Regular communication will go a long way toward heading off misunderstandings and disagreements – which, if left to fester, can destroy a partnership.
Just keep your partner up to date on what’s going on with the property. If, for example, a tenant moves out, let your partner know. Or, again, when that vacancy is filled, give your partner a heads-up. Basically, regular phone calls and/or emails will do a lot to keep your partnership healthy.
Overall, then, the benefits of buying real estate using a partner in Los Angeles outweigh the drawbacks – if you have all the necessary pieces in place. Really, the best way to enjoy the benefits of a real estate partnership while skirting the dangers is to call on the expertise of trained real estate professionals. And that’s where we can help.