Pros and Cons of Investing With a Partner
Partnerships, like marriages, live and die on expectations. As long as each party does what was expected of them going into the relationship, things generally work out fine.
On the other hand…
Well, there’s really no need to state the obvious—is there?
Real Estate investment can be fertile ground for a partnership. Teaming up offers a number of advantages. But there are potential downfalls as well. Here are the pros and cons of investing with a partner.
The most common reason individuals consider an investment partnership is to gain access to enough capital to do something larger than they could do on their own. Additionally, less experienced investors often choose to work with more seasoned people to learn the ropes without experiencing “rope burns.” A more accomplished partner can guide you through obstacles so you can come out on the other side with a thriving investment. Further, a partnership affords you the potential for making investments farther afield, where the potential returns might be greater.
Another advantage of a partnership is the leveraging of skill-sets. Let’s say you’re really good at the fine points of day-to-day management, while your partner is really good at the big-picture aspects of managing the investment. Working together, you’ll get farther faster than you could separately. Plus, when adversities strike, you’ll have someone alongside you going through the same issues. This means you can brainstorm solutions together, or at least have someone with whom to commiserate as you slog through the situation together.
Conversely, one of the biggest drawbacks of working with a partner is the forfeiture of autonomy. Rather than making decisions rapidly and on your own, you’ll often have to consult your partner before committing. This can sometimes slow progress.
Another downside is the potential ruining of a personal relationship. Working closely with another person means seeing all aspects of their personality. You’ll see their flaws and they’ll see yours. If you hit a bump and the two of you have unyieldingly divergent ideas of how to deal with it, there could be discord. Discord can grow into resentment, resentment can grow into hate—and hate leads to the dark side.
For these reasons, it’s important to have a solid understanding of why you’re entering into a partnership in the first place. Based upon that understanding, it’s essential to establish clearly defined roles and responsibilities and stick to them closely as possible.
One of the first things you should work out is how revenues will be split. Many a good partnership has been decimated by disagreements over money. To give your partnership the best possible chance of success, it’s imperative to work through all of these issues up front—and put your agreement in writing.
While it may not be absolutely necessary to have a lawyer draft the partnership agreement, it never hurts to run your agreement by one, just to make sure everything is according to your expectations and level of investment. After all, a good prenup can go a long way toward preserving the sanctity of a relationship.