A great way to get into real estate investing is to work with other people who have been earning cash by selling and buying houses. But how do you go about finding people to partner with you? In our latest post, we will talk about how to find and form an investing partnership.
Who should you partner with?
It is not about who you like the most (although that’s part of it) but rather who you can trust to work as hard and with as much passion as you do. You need to ensure that you are working with people who share your knowledge, drive, and commitment. Many people love the idea of a partnership or club, but in reality, they just like the idea of the rewards. Will the people on your team work with the same drive month after month? Will they be able to make their financial obligations? You are going to want to screen people carefully and put all expectations in writing.
Some partnerships or clubs will charge a hefty entrance fee, with much lower payments each month. This will weed out the people who are not serious about moving forward with a successful investing partnership. But even with high entrance fees, you can still expect to deal with people who become lazy over time. You need to have a plan in place for handling partners who are not pulling their weight.
How do you find them?
You probably already know many people who would be interested in an investing partnership. Put the word out that you are looking for people to partner with. Go to networking events and host your own meetings, where you present the benefits of partnership and discuss what you want to accomplish. Forming a partnership is very common. Making it work and maintaining it long term is the hard part. You want to find a sweet spot with how many investors you choose to work with. Too few will not produce enough funds to make substantial investments, whereas too many people will cause fights, start headaches, and be very tough to manage overall.
Define what you want to invest in.
Create specific goals and outline what each member needs to do to get you there. Decide what types of property you want to invest in: land, commercial properties, multifamily homes, or single-family homes. There are niche markets that might be of interest as well: industrial properties, mobile homes, etc. You will want to determine if other property types will ever be taken into consideration.
Set up and structure payouts.
Profits should be divided proportionately to the amount put in. What contributions are expected monthly? Are there minimums or caps? You will also need to factor in administrative costs and set aside money for things such as making copies, filing fees, and repairs. What is covered versus what is not covered needs to be clearly defined. Have a meeting to discuss this in detail. Make sure everyone understands that the structure is imperative. Cover all scenarios: new people joining or leaving and how you choose what to invest in it. Your property standards should be black and white and always adhered to.
This is business.
As such, it will need to be treated that way. Create an operating agreement, pay your taxes, and consult an accountant and a lawyer. Getting everything in order upfront will help you exponentially down the road. Decide if you want to form a general partnership, an LLC, or a limited partnership. If you are not sure, talk to a professional to find out what will work best for your team.
Have fun.
Remember, at the end of the day, this should ultimately be fun and exciting. The people you work with should bring inspiration and positive attitude to the table. Name your business something clever and give yourself a great title. It can be anything you want. This will help to get you thinking creatively and allow you to really enjoy what you are building together!