If you’re a real estate investor, especially a beginning investor, a partnership is probably a good idea. The right partner can provide all the things you lack, whether capital or experience or contacts. You can pool capital and resources and share costs and responsibilities, as well as sharing the risk.
But you do need to have a formal partnership agreement in place that clearly outlines the rights and responsibilities of both parties. Creating a partnership agreement for real estate investing is not hard to do. You need to spell out very clearly the obligations of each partner, and the rights each partner has, in a quick and easy reference document that can be updated as needed over time.
This agreement will go a long way toward avoiding disputes (and even legal action) somewhere down the road. Things can get ugly very fast if you go into it with different expectations! A partnership agreement will help you avoid such pitfalls by clearly laying out the rights and responsibilities of each party involved.
So here’s how to structure a partnership agreement for Boston real estate.
Responsibilities and Roles
The first task when you structure a partnership agreement for Boston real estate is to hammer out all the details on both parties’ responsibilities and roles. Whether you’re a seasoned veteran looking to expand your portfolio with some experienced partners, or you’re a beginner wondering how to handle the operation of an investment property, structuring the right partnership agreement can mean the difference between success and failure.
Real estate investing is not just about having money – it’s about a lot of other factors that bring success. Your experience and knowledge are just as important as cash when organizing a new real estate partnership with another party.
And in order for the partnership to prosper, those roles must be realistic and within each person’s area of experience and expertise. Each partner must have a clearly defined role with clear-cut responsibilities within that role.
Defining roles and responsibilities should take into account each partner’s individual strengths, weaknesses, competencies, and preferences. And when assigning the roles and responsibilities, you need to consider at least the following areas:
- Lead development
- Acquisition
- Finances
- Marketing
- Construction and repair management
- Property management
- Sales
- Business development and growth
Keep in mind that these roles and responsibilities will evolve over time, so you have to structure a partnership agreement for Boston real estate with the elasticity to accommodate such role evolution. Things change, and your partnership agreement should be enough of a “living document” to allow for that.
Money Matters
To successfully structure a partnership agreement for Boston real estate, you must be absolutely clear on the financials, which is typically the most important aspect of any partnership agreement.
A clear understanding of the foundational money matters is the surest way forward toward a successful partnership.
The questions you will need to ask and answer in this part of the partnership agreement structuring include:
- What are some key financial elements you need to consider?
- How much capital will each partner contribute?
- How will profits be split?
- What are the desired returns on investments?
- How will the partners hold title?
- Will you pay yourselves a salary?
- What will be the level of risk tolerance/aversion?
- How will financial decisions be made?
- If there is a dispute regarding the partnership, how is that resolved?
- What are the investment philosophy and business model?
- Do your retirement goals and exit strategies align?
- What would happen if one partner wants out?
Time Commitment
The amount of time each of you plans to stay in the real estate business, as well as how much time each can devote to the business, will also play a big part in how you structure a partnership agreement for Boston real estate.
Most often, real estate investment businesses begin as part-time ventures. It is imperative, then, that you and your partner be comfortable with the amount of time each is willing and able to devote to the business till it takes off and becomes a full-time affair.
In addition, you need to be clear about long-term commitment. For example, do you both plan to stay in the business for a decade or more? Or does one of you want to commit to only a couple of years? Clarity in this area at the outset can help you avoid bitter disagreements (on even lawsuits) later on.
Protection of Assets
Although entering into a partnership can be a great move for a real estate investor, there is always a risk, no matter how trustworthy and financially solid your partner seems to be. So you must structure a partnership agreement for Boston real estate in a way that protects your assets. Even if the risk is obviously slight, you still need to protect yourself.
You also have to protect yourself and your assets from malicious lawsuits. (Tenants are known for suing at the drop of a hat.) This kind of protection will determine in large part the kind of business entity you form. So be sure to consider the overall business trajectory, liability protection, tax treatment, and the ease of formation.
Using Common Sense
If you are planning on establishing a partnership to develop and sell real estate properties, you need to have a partnership agreement in place. It may seem like common sense, but it is really important that you understand that real estate business ownership is different than other forms of business. Your partnership agreement must include as much detail as possible.
While your real estate agent is not a business consultant, she can, nevertheless, be a wealth of information on the real estate side of your business. It’s probably a good idea to consult your qualified local agent when you’re ready to structure a partnership agreement for Boston real estate. And we’re ready to help when you are ready.
Discover how our agents can assist you to structure a partnership agreement for real estate in Boston! Contact us today! (617) 657-9811
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