How to Ensure Whether Real Estate Partnerships Are Right For You
Real Estate Partnerships carry a lot of significance. Forging such a partnership is about consolidating the assets at the disposal of two different parties. A Real Estate Partnership helps pool the collective effort of your partner and your enterprise when you are in agreement. However, a Real Estate Partnership can also become a cause for setbacks and headaches if not scrutinized beforehand. Agreeing to an investment partner can help you test uncharted waters in the real estate market, but, not without risks; declining a Real Estate Partnership may also help avoid certain entanglements, but, what if you are not foreseeing the rewards?. So, what’s the right call?
Rather than making a snap decision on accepting or declining Real Estate Partnerships, why not weigh the pros and cons for yourself? But first, let us find out what a Real Estate Partnership entails.
Real Estate Partnerships explained
It is quite self-explanatory that a Real Estate Partnership is about striking a commitment between two parties to align their business efforts and assets together, in order to meet goals and milestones. Finding a Real Estate partner for yourself is not as easy as finding someone with the same taste in apartments as you.
A Real Estate Partnership is only as good as how well the partners complement one another on various aspects. Simply partnering up with someone you know will not cut a profitable partnership for you. One requires calculative foresight to partner with someone who has real-time experience in the real estate sector. It also helps the common goal if you are on the same page with whoever you intend to partner up with.
Also read: Multifamily Deal Analysis: 3 Core Concepts You Must Know
Partnerships do not have to be limited between two parties alone. Any number of people/parties united by a common goal can partner up if they are bringing complementary skills to the table, and offering up capital and resources for the cause; but, the complexity of such a partnership demands a structured approach- like forming an LLC company/business/enterprise. Simple, two-party partnerships can however suffice with even a mere agreement on paper.
Finding a compatible Real Estate partner(s) should help elevate the quality of your investments, accelerate operational progress, and offer manifolds ROI.
What are the pros and cons of a Real Estate Partnership?
The pros:
● Directives that unite
A partnership sees to it that not one but two (or more) parties are contributing their efforts to a common goal. It is not only about putting your ideas together but also about pooling in your collective resources, capital, networks, etc. The best partnerships are made out of complementary partners with complementary skills and experiences to back their agenda. Collectively channeling your efforts also means dividing tasks that help accomplish goals in a comparatively less amount of time spent in meeting targets.
● More than the moolah
A lot of individuals labor under the misconception that Real Estate Partnerships are all about the money; the money is only one aspect of it. Your partnership may provide you access to skills that would cost you more if you hired the same talent independently. Imagine if your partnership gave you access to a broad network and a larger market than what you had to yourself; you cannot buy connections with money, but unlock it with partnerships!
● Better business networking
a partnership would yield more in terms of a seller’s market, accessibility to investors, and more potential partners! Freshers may benefit from leveraging the experience that their partners bring to the table, by offering a share in the profits for the expertise.
● Operational advantage
A Real Estate Partnership usually brings together diverse minds with diverse skillsets. Diverse minds can help divide and conquer the taskboard and speed up meeting targets. The property management business has many aspects to it, such as the administrative aspect, the maintenance, aspect; then, there are practical, financial, and management-oriented tasks as well. When you have a Real Estate Partnership to bank on, you can expect such tasks to be cut up and distributed across the table on the basis of expertise. In this way, no business requirement slips between your fingers.
● Business benefits
As the Real Estate Partnership resolves issues and tasks in a lesser span of time, you can successively move on to the next target quicker than on your own. Or, you can also focus on multiple targets simultaneously. There is a greater chance of success guaranteed either way when there are more heads working together towards a common goal. A sped-up time-frame, or a multi-faceted and diverse business focus means bigger business benefits.
The Cons
● Structural instability
A Real Estate Partnership can, however, spell turmoil for you and your partner(s) too, if there is no structure. Without a properly delineated structure to the partnership, the lines between responsibilities, capital, and even working hours, are blurred. In order for a partnership to work, there has to be a well-defined set of rules for who is tasked with what, who contributes a certain resource and skill-set to the equation, and documents the division of variables in the equation, such as profit splitting, client networking, and business contacts, etc.
● Paperwork and its cost
Solemnizing a partnership on paper is important. In order to legitimize a partnership, one has to bear the legal costs along with other peripheral costs. If you are forming an LLC or LLP partnership then you will have to encounter infrastructural and administrative costs for shaping the business. The costs depend on the nature of the partnership formulated; and, without drawing up the terms of the partnership diligently the costs can be heavier on one party (or more if many are involved in the partnership) while benefiting the other(s).
● Profit-sharing
Some might argue that this is a factor that is the bone of contention for most of the disputes stemming from any Real Estate Partnership! It is a wrong notion that profits must always be split equally in a partnership. The sharing of the profits in the partnership must always be proportional to each party’s contribution to the joint effort; so, some might say the profits for each deal rely on what each party is contributing to making that deal happen.
● Irreconcilable differences
It is natural to witness disputes in a partnership. But, there must always be a way to get over that point of conflict. Realistically, you must always leave a way in which you or your partner(s) can extend the olive branch in the event of a dispute, in order to not lose sight of the common goal. A partnership without any dispute ever is hard to come by, so you are well-suited for a partnership only if you are capable of compromise for the sake of conflict resolution.
● Finding the right partner(s)
Finding kindred spirits in business is as hard as in life outside of business! In order for a partnership to reap benefits for you down the line, you need to ensure that you are partnering up with the right party(s). Without a goal or complementary resources to move ahead with, there is not much left to stop a partnership from becoming unglued. As many will agree, unforeseen splits in partnerships cause more loss than profit.
So, forming a partnership is not always prudent in every prevailing condition. However, a practical perspective of ‘what’s in it for me and you’ and weighing the pros and cons, help make an informed decision.
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