A great way to get into real estate investing is to work with other people who have been there before. But how do you go about finding a people to partner with you? In our latest post, we will talk about how to find and form an investing partnership.
Who should you partner with?
First, you’ll want to give some thought to what exactly you will need in order to successfully invest in real estate. For example, maybe you have a lot of savings and found a property that needs a lot of work but don’t really know how to manage contractors. So, the key element to having a successful investment is finding the right person to manage the construction of property. To find the right partner you’ll need to figure out what specific skillset you lack to make a successful investment and find the partner will the right skill set to fill this void.
How do you find them?
You probably already know many people who would be interested in an investing partnership. Put the word out that you are looking for people to partner with. Go to networking events and host your own meetings where you present the benefits of partnership and discuss what you want to accomplish. Forming a partnership is very common. Making it work and maintaining it long term is the hard part. You want to find a sweet spot with how many investors you choose to work with. Too few will not produce enough funds to make substantial investments. Whereas too many people will cause fights, headaches and be very tough to manage overall.
Define what you want to invest in.
Create specific goals and outline what each member needs to do to get you there. Decide what types of property you want to invest in. Land, commercial properties, multi-family or single-family homes. There are niche markets that might be of interest as well. Industrial properties, mobile homes, etc. You will want to determine if other property types will ever be taken into consideration.
Once you have decided on the specific asset type to focus on you want to figure out your specific investment strategy. Will you be purchasing property with tenants in place to generate cash flow and hold for the long term? Or maybe you want to focus on purchasing deteriorated property, fix it up and then put tenants in place? There are many different strategies for real estate investment so clearly defining the strategy you plan to implement is important when putting together your partnership.
Set up and structure payouts.
Profits should be divided proportionately to the amount put in. What contributions will be expected monthly? Are there minimums? Caps? You will also need to factor in administrative costs and set aside money for things such as making copies, filing fees, repairs, etc. What is covered, vs. what is not covered needs to be clearly defined. Have a meeting to discuss this in detail Make sure everyone understands the structure is imperative. Cover all scenarios: new people joining, people leaving, and how you choose what to invest. it. Your property standards should be black and white and always adhered to.
This is business.
As such, it will need to be treated that way. Create an operating agreement, pay your taxes, consult an accountant and a lawyer. Getting everything in order upfront will help you exponentially down the road. Decide if you want to form a general partnership, an LLC or a limited partnership. If you aren’t sure, talk to a professional to find out what will work best for your team.
But have fun.
Remember, at the end of the day, this should ultimately be fun and exciting. The people you work with should bring inspiration and a positive attitude to the table. Name your business something clever and give yourself a great title. It can be anything you want. This will help to get you thinking creatively and allow you to really enjoy what you are building together!