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?
It isn’t about who you like the most, (although that’s part of it) but rather who can you trust to work as hard and with as much passion as you. You need to ensure you are working with people who share your knowledge, drive, and commitment. Many people love the idea of a partnership or club, but in reality, they just like the idea of the rewards. Will the people on your team work with the same drive month after month? Will they be able to make their financial obligations? You are going to want to screen people carefully and put all expectations in writing.
Some partnerships or clubs will charge a hefty entrance fee, with much lower payments each month. This will weed out the people who aren’t serious about moving forward with a successful investing partnership. Even with high entrance fees, you can still expect to deal with people who become lazy over time. You need to have a plan in place for handling partners who aren’t pulling their weight.
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.
This is so important as an “investment property” can mean so many different things. Imagine if your goal is to primarily buy multi-family homes in Loveland, OH but you partner with someone whose primary goal is to buy a plot of land to use for parking in Lexington, KY. While both of these could bring in profit, you and your partner may get into arguments along the way because your ideas of an investment property are so different from one another.
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 in. 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!