Buying an investment property with a partner might include anything from personality conflicts and strains on relationships to the positives of distributing workload and the combination of resources.
Because of the variables, it is important to look at every aspect of working with a partner to buy an investment property. In-depth research can mean the difference between a lucrative endeavor or a costly venture.
When looking at buying an investment property with a partner, we believe there are several things to consider.
The Pros of Investing with a Partner
Working with a partner can sometimes be beneficial when buying an investment property. Not only do you have an extra set of hands, you can often make larger investments with the combination of resources.
Here are some potential benefits of working with a partner when investing in real estate:
- Someone to pool ideas with.
- Your partner can balance out your weaknesses and vice versa.
- Potential to make larger investments.
- The ability to split the workload.
- Additional networking opportunities.
- Combined portfolios might be more impressive to lenders.
- Division of risk depending on how the investment is structured.
If you are considering working with a partner, evaluate if it is a good fit before committing.
The Cons of Investing with a Partner
While there are pros of working with a partner to buy investment property, there are also cons to consider. Here are a few:
- You do not have total control of the investment.
- The partner could break their workload commitment.
- A partner can have their financial status change.
- If the partner is a friend or family, it can cause a strain on the relationship.
- The earnings will be split between partners.
- You take joint liability for the partnership’s debts.
How to Invest with a Partner
Looking at the pros and cons of a specific partner should take place before deciding on investing together. There are also additional factors to consider before proceeding to buy an investment property with a partner.
- Do you really want a partner? Sit down and think about your personality and work style. Some investors find it isn’t in their best interest to work with a partner, simply because they lose autonomy in their business.
- Evaluate the skill sets of yourself and the potential partner. When looking at a potential partnership, you should look at both your strengths and those of the other person. Complimenting skill sets are important. If what you each bring to the table is not balanced, it can cause friction and lack of productivity in the partnership.
- Take a close look at roles and expectations in the partnership. Once you have established it is a fit, you need to make sure there are defined roles based on strengths and weaknesses. You should clearly lay out what the responsibilities of each partner will be.
- Establish clear agreements for financial considerations. The percentages of ownership, contributions, and other stipulations need to be decided before a partnership is established to buy an investment property. For example, will it be a 50/50 financial split? Or, one partner makes a larger financial investment while the other has a higher percentage of work on the investment.
- Make it legal. The partnership should always be set up with legal counsel. Every aspect of the partnership should be written into a contract and agreed to by both parties. This is to protect you and your partner.
Only you can decide if buying an investment property with a partner is a good choice for you. Carefully consider every aspect of the partnership before committing and to help ensure a better chance of being a lucrative investment for you and your partner.