If you’ve been successful in flipping properties, you may have considered working with a partner to expand your investment portfolio more quickly. As with any partnership, there are advantages and disadvantages that you should consider.
The pros and cons of working with an investment partner
While real estate limited partnerships are an opportunity for individuals to join a team of investors, here we will focus just on working with a partner for your next fix-and-flip. Let’s take a look at the pros and cons.
You can share the risk. Risk is inherent with real estate investing -- particularly fix-and-flip properties -- but a partner can help lessen the financial blow if an investment doesn’t reap the desired profits. This alone may give you the confidence to take on distressed properties that require more money and time to flip but could pay off impressively in the end.
You can pool talents and resources. More money is always helpful in real estate investing, but don’t discount more knowledge, too. As the saying goes, two heads are better than one. In a good working partnership, you’ll combine your talents and resources -- including contractors and other team members -- as well as the day-to-day responsibilities of renovating so that you can find and flip properties more quickly.
You can expand your niche. Have you been wanting to break into a new niche of real estate investing? This could be your chance. It’s hard to deviate from a business model that’s been working for you, but if you’ve wanted to make the switch from single-family to multi-family flips, for example, find an experienced investor and discuss a partnership for your next investment property.
You’ll reduce your decision-making power. It’s highly unlikely you’ll have a partner with whom you see eye to eye on everything. This is why it’s important to consider partners who at least share your level of risk tolerance -- bonus points if you have similar taste in home renovation. But at the end of the day, if you go 50/50 with your investment, you’ll only be halfway there. You’ll need to consider the opinions and risk tolerance of the person putting up the other half of the money. Compromise is the name of the game -- you just have to figure out if you’re willing to play it.
Your partner could prove untrustworthy. It’s one thing if your arrangement is with a silent partner who fronts the money while you handle the renovation. But it’s another one entirely if you secure a property with someone who says they’re going to be hands-on with the flip -- and then disappears. Whatever you do, get the terms of your partnership in writing so there are no unfair assumptions and no unpleasant surprises when you acquire a property.
You'll have to share the profits. Of course, if you do turn a profit, you'll have to split it with your real estate partner accordingly. Even if your share is sizable, you might feel resentful that it has to be split at all -- particularly if you're the one doing all the grunt work. If you feel that your bottom line is doing just fine without a partner, then stay the course. However, if you want to grow your property portfolio substantially, you might find that a partner is necessary to flip properties faster.
The bottom line
Should you keep flying solo when flipping houses, or should you take on a partner? As with all big financial decisions, it all relies on your willingness to share in both the risks and the rewards of property investing.
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