Nick Statman on Property Investment & Partnerships. One of the biggest draws to property investing is the idea that you can work for yourself. Full-time investors have the flexibility and freedom to work when they want, where they want, and how often they want, without having to work a set amount of hours or answer to a manager or upper-level executive. However, property investing does require some sort of teamwork. You need to build a network of contractors, legal professionals, and other contacts to help you find, maintain, buy, and sell property. Another aspect of property investing teamwork is investing with a partner.
There are many benefits to investing in property with a partner, but there are also some disadvantages. Before you decide to work with an investment partner, consider some of these important factors:
Pros Of Investing With A Partner
An active or passive investment partnership can be beneficial in many ways. From sharing the risk to increasing your network, working with a partner can be crucial to your success.
One of the most significant advantages of working with an investment partner has to do with investment finances. Working with someone else allows you to pool your resources, talent, and network to raise the necessary capital to make investments. If you are an active and eager entrepreneur, but you lack the funds to invest in property, partnering with a passive investor may be the perfect match. There are many investors out there who have a lot of money but don’t have the time, energy, or desire to do all the work that comes with property investing. If they can put up the money and you can take care of the work, everybody benefits and uses their strengths to make a profit.
Another reason many investors choose to work with a partner is because it expands their network and knowledge of the industry. Many new investors partner with seasoned investors to learn from their experience and expertise. Any successful business person will tell you about the importance of mentorship. If you can connect with an experienced property investor, you can learn from their mistakes instead of having to make your own. This partnership can be mutually beneficial and help new investors learn the ropes of the industry.
As a property investor, you probably have a specific set of strengths. But this also means you are inexperienced in other areas. Partnering with someone who brings a different set of skills to the table can help you become a more comprehensive and well-rounded team. If you are great at accounting but struggle with sales or negotiation techniques, creating an active partnership with someone who is great in sales can help both of you become more successful and profitable investors.
Cons of Investing With A Partner
Just like any other type of relationship, a partnership with another investor can make the process a little more challenging. Splitting the responsibilities means splitting the profits, and may mean you lose some control of your investment.
Splitting The Profits
When you work alone, you reap the benefits on your own. When you split the work with a partner, whether active or passive, you also split the profits. There are many different types of property investing partnerships, including 50/50 partnerships where you split the cash flow evenly with your partner, or 30/70 where one partner makes significantly less than the other based on predetermined roles and responsibilities. Working with a partner means access to more resources, talent, and finances, but it also means you’ll make less per investment than you would if you were investing alone.
When you invest as an individual, you alone are responsible for paying the taxes associated with your investment. When you work with a partner, things could get more complicated in terms of splitting the tax responsibilities. If one partner does not file taxes on time or files incorrectly, everyone involved could be affected.
Lack of Control
When you work on your own, your opinion is the only one that matters when it comes to buying and selling property. You do the research, you make the connections, you raise the money, you spend the money, and you are in control of your portfolio. When you work with a partner, this is not the case.
Working with an investment partner means taking into consideration the ideas and opinions of someone else. If you are both contributing the same amount financially to the investment process, their opinions and ideas are just as important as your own. This means there will be compromises, and that you cannot simply make property decisions on your own. Working with a partner means bouncing ideas off of someone else and making decisions together. If it is hard for you to relinquish some of the control regarding your investments, especially when it comes to finances, it may be hard for you to work well with an investment partner.
Ending a partnership can be a property investment nightmare. When you are strictly working on your own, if you suddenly decide that property investment is not for you, you can gradually remove yourself from your investments, sell your property, and move on. But that is not how it works when you are in a partnership. Your decisions and your absence will dramatically impact everyone else involved. It could mean a messy and legal feud that will cost everybody time and money. If you choose to leave the partnership, you may have to sell the investment property so that you can split the shares. When you get involved with an investment partnership, it is important that you are committed to the long run.
Whether or not you choose to work with a partner, and whether or not you choose an active or passive partnership, depends on your specific situation and financial goals. It is important to remember that just because someone makes a great friend does not mean they will make a great business partner. Even if you decide to go into business with someone you’ve known for a long time and trust, it is important to put all expectations down on paper and into a contract. If you are in the process of looking for an investment partner, it is important to:
- Have a clear understanding of your needs and goals. This way, you will be able to find someone who is on the same page and can help keep you focused and accountable.
- Ask yourself if this particular partner is someone you would want to work for. Do their work ethic, communication style, decision-making, and time management skills work with yours?
- Make sure they understand your vision
- Determine what skills and talents they bring to the table and consider how they work with yours.
If you’ve been considering a partnership with a fellow property investor, it is crucial to weigh the pros and cons before making any decisions. Just like with any other type of collaboration, success comes when both parties are clear about their expectations and goals, can communicate effectively, and share the same vision.
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