Considerations for Your Real Estate Partnership

It almost doesn’t matter how the real estate market is doing for buyers or sellers; real estate can be a profitable venture. But it also can be an expensive one, and one that requires specialized skill, and because of those factors, many people opt to join forces and start real estate partnerships.

All partnerships have some degree of risk, but even more so with real estate partnerships. Because of the money involved and the stakes, real estate partnerships can and do go sour, or end up in court. Here are some considerations to try to keep that from happening.

What is the Partnership Doing?

This may seem obvious, but just saying “real estate” isn’t enough. Are you buying and selling real estate? Holding real estate to rent out? Will your partnership include commercial real estate? Are you only looking for foreclosures, tax deed sales, or some other type of property?

You can do any or all of these, but make sure you’re all on the same page. If some potential partners don’t want to engage in any or all of these, you don’t want unhappy partners or fighting in the partnership.

Who is Doing What?

Clearly knowing everybody’s role and responsibility is essential. Many partnerships just say “I’ll pay the money you fix up the property we buy,” and leave it at that — but there is a lot more for partners to do than that.

Think of who will hire and manage subcontractors, or deal with any tenants that may be in the properties that you buy. If you’re getting financing, whose name will be on the loan paperwork? Who will front any inventory costs that require purchases in advance?

Remember if you are seeking to rent property that you buy or fix up, you’ll need your agreement to spell out partners’ duties with respect to managing the property once tenants do rent it.

And once you determine who is doing what, you also need to define time frames — how long a partner might have to do a given duty.

Remember that in-kind contributions to the partnership are great and are contributions — but partners paying money may get frustrated over other partners who are contributing in-kind services, if there is a feeling that those services aren’t equal to what the money-paying partners are paying.

And don’t forget losses; while many partnerships make all partners equally liable, that isn’t legally required. Know in advance who will pay what for losses.

Who is Making What Decisions?

Real estate takes a lot of decisions. From what properties to buy, what needs to be done to them, and the logistics of listing, renting and selling. You will both need a clearly spelled out way for partners to vote, but also, some way to break tie votes if there are an event number of partners.

You can designate a partner to be “the boss,” and the person who handles decisions, or go for a more democratic type voting system. Both have advantages and disadvantages.

Call our West Palm Beach commercial litigation attorneys at Pike & Lustig to help you set up, run and manage your partnership legally and safely.

Source:

baymgmtgroup.com/blog/real-estate-partnerships/