Creating A Successful Real Estate Partnership Agreement
When it comes to real estate investing, you should always be looking for opportunities to leverage your own knowledge and capital with other investors that complement your strengths. However, do NOT enter a real estate partnership agreement without taking the time to make sure all parties are bringing something to the table.
Real estate investors look for partners with at least one of the following:
- Deal Flow
If you are just starting out, you might not have a lot of capital, but you might be willing to leverage your time with someone who has more experience in the field. One of the ways that novices get involved in real estate investing is “bird-dogging” for investors with capital. In this partnership, the bird-dog will spend time pounding the pavement, looking for deals that meet the capital partner’s criteria. If they end of doing a deal together, the bird-dog can either get an upfront fee for finding the opportunity or will be paid based on the profit of the deal.
As you can see from this example, it is easy to create a mutually beneficial real estate partnership agreement if both parties are motivated to help one another. Remember, don’t create a partnership without following these rules:
- Get your expectations in writing beforehand
- Make sure all partners are adding something to the partnership
- Make sure all partners invest some capital, even if it just a small percentage of the deal (remember you can use your self-directed IRA to partner with other investors)
- Structure all deals so that incentives are aligned
- Avoid large upfront fees! Structure payments based on cash flow or other performance based structures
When you finalize the documents of your real estate partnership agreement, make sure you read every word. This decision could affect you for a long time! Go in with the wrong expectations and it could be one of the worst mistakes of your life. However, don’t be too afraid to look into partnering as a viable option. After all, almost all of the world’s most successful people have created partnerships to help grow their business and supercharge their returns.