How to Buy a Rental Property with a Partner
Have you thought about getting a partner for your next rental property venture? Here are some things that you should know about rental property partnerships.
Entering the real estate investment market can be daunting and confusing. But there is no reason why you must do it alone. If you are thinking about becoming a real estate investor through the purchase of a rental property, you may have considered doing so with a partner. There are lots of different ways that partnering up can be done when it comes to rental properties. Whether you decide to purchase with a best friend or a stranger, joining forces in a rental investment could be a great decision, and have higher success that going alone.
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What is a real estate partner?
If you are not wanting to invest on your own and are looking for someone to buy your rental property with, then you will be needing a real estate partner. There are different types of real estate partners. It could be that you choose to invest with your spouse or best friend. Or a family friend that you know has good business sense. Or someone completely new that you do not previously know. The process is the same no matter who your partner is. You will be purchasing a rental property in both of your names, and you will share everything related to the investment.
What are some reasons for investing with a partner?
There are some obvious pros and cons for investing with a partner. You may be thinking that having a partner means sharing profits but remember that having a partner also means you share the risk and the responsibility. There is a reason why rental partnerships are so common, and often encouraged by industry leaders. Mashvisor elaborates, saying that many successful real estate investors find that starting a real estate partnership to be a highly successful opportunity for buying an investment property and optimizing the profits while minimizing the costs.
What are some of the risks with investing with a partner?
Like any partnership or relationship, investing with someone can be great while it lasts, and terrible when it ends. And this brings us to the biggest risk with buying a rental property with a partner. Like ending a domestic relationship or a marriage, severing an investment partnership is not always straight forward. In fact, it can end up messy and costly. Investopedia goes on to say that that if both names or on a mortgage, if one (or both) wants out, it will require the selling or refinancing of the property. This can be time consuming, and there is no guarantee that your lender will approve a refinance.
The best way to mitigate this risk is to ensure that you have a written agreement in place detailing what is to happen if either party decides to leave. This will also come into effect if there is a death. Nothing is certain in this world, especially when it comes to the real estate market. So, mitigating the risks associated with a partnership is especially important. You will also want to make sure you invest time in building the partnership. You do not need to be best friends but having mutual respect will go a long way.
How to find a partner to invest with, and what are some tips?
Making the decision to invest with a partner is one thing, but how do you actually go about finding a partner? Because you are purchasing a rental property with them, it is going to need to be a long-term partnership, so it will need to be someone that you trust and can work alongside with. Source: Leap.
- Establish a network. If you are not lucky enough to already have someone you know willing to invest with you, then you will need to widen your network. Attend real estate events and make it known that you are ready to invest and are looming for a partner.
- Ensure you have the same vision as your partner. Because you are wanting to invest in rental real estate, you need to make this clear. Be specific. Are you interested in residential or commercial real estate? What is your budget? Ensure your vision and he vision of your partner align.
- Specify responsibilities and roles. Ensure that each partner understands their role in the partnership. What are they expected to contribute? For a rental real estate partnership to work, there must be an agreement, and the agreement needs to be fair and mutually beneficial. When you agree on who is responsible for what from the beginning, it will lead to accountability. And accountability is key for a successful partnership.
- Get everything in writing. Even if your partner is someone you have an intimate relationship with, word of mouth is never a good strategy. If everything is clearly written out in writing in the form of a contract, then this will avoid arguments.
- Make it legal. Purchasing a rental property is a big and expensive step, so you will want to legitimize your partnership in the eyes of the law. The property will need to be purchased in both of your names so you will be equally liable.
You may think that finding and securing the actual rental property will be the hardest step. And while this can be true, you should not underestimate the importance of finding and establishing a solid partnership if this is the route you choose to take.
Entering the real estate investment market can be made less daunting and end in success if you choose to purchase a rental property with a partner. As can be seen, there are many variables when it comes to finding a partner. Rental properties are a long-term investment, so you need to ensure that the partner you choose to invest with is going to be there for the long haul. If you find a good partner and choose a rental property wisely, then there is no reason why you cannot have long term success with your investment.
Charles is the founder of infoSpike.com. He enjoys real estate investing, marketing, and personal finance. Read more about Charles here.