Everyone in real estate needs a partner. Whether it is for handling the legal work, acting as the rent collector or just for investing, a real estate partner makes things easier.
But taking a part a in real estate partnership, especially just for investing in real estate comes with a number of challenges and risks.
1. Complication is ownership & transfer of control when there are no legal agreements
This is an unlikely event but what happens when you and your partner don’t have the terms of your agreement written on paper? The reason I called it unlikely is that no one goes into a real estate partnership without legal documentation. But let’s say you haven’t figured out the legal terms yet.
After an unlikely death of your partner, how will things go? If there are more partners than just the 2 of you? What happens to the other partners? Will the share of ownership of your investing partner be distributed to the remaining partners? If you don’t have definite answers to these questions, there you might get into legal trouble with your partners or the family of your demised partner.
2. Non-compatible relation
Let’s say you have sorted out the legal papers in time. But this doesn’t mean there is no risk involving the investment only partner.
To ensure the risk of having someone who doesn’t see things like you or wants the same things as you do, it is best to talk to the potential partner beforehand. Make sure you asked everything you need to know about your partner to ensure he and you have a similar sense of situation handling. This way, when you leave for a vacation handing over the responsibilities to your partner, you know that things will be in order just as you left it.
3. Trust issues
When you take a partner with you just for investing in your real estate ventures, you are leaving him out from some of the administrative and executive decisions. This is what happens usually in an investment only partnership in real estate. The investing partner usually has very little to say about the executive decisions unless he is given the authority in the papers. This happens because the investing partner usually is here for the profits only.
So, when the profit is not what the investing partner expected, he might question your decision or even lose his trust in you.
4. Having an investing partner from your friends and family may affect your personal life
More often than not, people like to get their family members and friends involved. But what happens when the results are not what they expected. This might cause tension between you and that person in your personal life.
Bottom Line
I am not saying that it is not a good idea to take on an investment only real estate partner. But if you are taking on someone, make sure they are fully aware of the risk and try to avoid the situations that create risk in your real estate venture.
