By Omar Johnson
The author has permitted the reprinting and redistribution of this article.
While there are some successful single member real estate business, partnering is a common method used by real estate investors to maximize their leverage and their effectiveness. Understanding some basic principles can help you be smart about how and when you work with partners.
There are two fundamental ways to partner and two fundamental meanings to the term. The least binding way to partner in real estate is to split profits from specific deals, deal by deal, according to a comfortable working arrangement. This type of partnership between two people or entities can be put in writing in the form of a joint venture agreement, which should contain a few key clauses.
The first is that the parties have to agree on decisions regarding the actions of the joint venture. The second is that profits generated by the joint venture will be split equally between the venturers. Another is that the parties will be separately responsible for their own operating expenses.
A fourth is that the parties hold each other harmless for damages they incur. And finally, another states that the parties are independent agents and are free to do any other business outside the joint venture. Make it subject to cancellation by mutual consent of the parties and you’ve got something in writing to formalize the arrangement.
The advantages of this type of agreement are that you can joint venture with as many people as you want without sacrificing your independence or freedom, or incurring liability on account of someone else’s actions. The only disadvantage, if you consider it one, might be that a joint venture agreement doesn’t actually require either party to do any work.
The second fundamental way to include other people in your business is by equity partnering, which is where you and another person (or people) get into the same business entity and share business decisions. There are many ways to accomplish this, the details of which are beyond the scope of this article, but they all have the same fundamental advantages and disadvantages.
The advantage to this type of arrangement is that it allows you to share responsibility and control within the business, allowing it to grow beyond you and your preferences. The disadvantage is that it requires you to share responsibility and control within the business, requiring it to grow beyond you and your preferences. Not much more can be said except that it is a personal decision that should be given careful consideration.
When considering partners many people think of friends and family first. There is nothing inherently wrong with this, but you should realize that the greater the pre-existing relationship, the more there is at stake should the business relationship not go well, and manage risks accordingly.
Whatever mode of partnering you choose to use there is a particular way to think about the process that will expand your horizons. Often new investors tend to think that the more partners they have the less profit there will be, but this is not the ideal way to think. Instead think of enlarging the pie before you cut it; that way everyone gets a bigger piece.
Omar Johnson is a successful real estate investor and author of the home study course Renegade Stealth Marketing For The Savvy Real Estate Entrepreneur For more info visit httpwww.renegadestealthmarketing.com
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