For many people looking to earn a passive income or diversify their investment portfolios, real estate investing is a popular method. However, not everyone can afford to invest in properties on their own, which is where real estate partnerships come in. These partnerships can range from a simple agreement between two investors to a more complex business entity with various partners contributing differing amounts of time, money, and resources.
Overall, these partnerships let investors who can’t afford to invest in real estate on their own pool their resources with a trusted partner and see successful returns. While this may sound like the perfect investment method, it’s not without its own share of hurdles. Before getting started, learn the pros and cons of real estate partnerships you should be aware of.
What Are the Pros of Real Estate Partnerships?
As we mentioned, real estate partnerships let you pool resources with one or more investors so you can invest in otherwise unaffordable or unobtainable properties. However, partners bring more than cash to the table. Another investor may have stronger credit, allowing you to take out better loans and finance a better deal. There’s also much less risk involved, and should the investment go sour, the resulting financial stress isn’t all on your shoulders.
Another significant advantage of real estate partnerships is the ability to divide and conquer. When you own and manage properties, the responsibilities can quickly overwhelm you. Partnerships take some of that burden off your shoulders, and you can share responsibility and accountability among partners. As a bonus, the more partners you bring to the table, the more insight, perspective, and knowledge you accrue, which is helpful for first-time investors still learning the ropes.
What Are the Cons of Real Estate Partnerships?
For many people, the biggest disadvantage of real estate partnerships is the simple fact that you have to work with and rely on other people. Not everyone has the same goals, vision, or work ethic as you, which can turn into a significant problem as the professional relationship develops. You have to split profits with other people, and you run the risk of others not pulling their weight.
You can mitigate some of these risks by going through an LLC. Among the pros of buying properties via an LLC are bringing legitimacy to the table and ensuring your personal assets are protected. However, this does take extra time and money, which not everyone is willing to supply. Partnering with an LLC also doesn’t change the fact that you may simply butt heads with the person you’re working with if your personalities clash. Plus, if someone decides to leave the partnership, you’re going to have a hard time continuing business.
Is a Real Estate Partnership Right for You?
We’ve established the pros and cons of real estate partnerships, but is forming a real estate partnership right for you? The answer depends on whether you can find a partner you truly trust and know you work well with. If you’re lucky enough to find that person, then a real estate partnership may be right for you. If not, you may be better suited for another investment method. However, if you’re determined to go down this route, you can always join a partnership that’s already established and has formed a business entity. While there may be some membership fees, it’s much safer than investing with someone you don’t completely trust, and you can cash in on all the benefits of a partnership.