8 Secrets to Structuring an Efficient Real Estate Partnership

8 Secrets to Structuring an Efficient Real Estate Partnership

6 min read
Engelo Rumora

Engelo Rumora is a real estate investor, your favorite Australian, and the Real Estate Dingo.

Experience
Engelo quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate all over the world and has bought, renovated, and sold over 500 properties (at which point he stopped counting).

Engelo runs the most reputable turnkey real estate investment company in the country: Ohio Cashflow (ranked multiple times on the Inc. 5000). He is currently in the process of launching a real estate brokerage, “List’n Sell Realty,” that will disrupt the entire industry.

He is also known for giving houses away to people in need and his crazy videos on YouTube.

His mission in life is to be remembered as someone that gave it his all and gave it all away.

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You often hear people talking about how great a joint venture is and how that partnership has given them so much more business. But how can that be? Doesn’t a joint venture always amount to more work, less freedom, and endless disagreement between partners?

If these questions have been troubling you, you’re not alone. So now, sit back and allow me to break it down for you. Entering in a joint venture or partnership with someone is something that, when done correctly, can give you a ridiculous edge in the long run. In fact, if it’s money you’re after, partnering up is the best way to do it.

It can be best described as a seamless merger between two parties — this partnership can mean many things, but often it’s a business expert who partners with someone who brings in the capital. Sounds simple? It is an extremely lucrative preposition and has a lot of potential. However, there are certain things that you’d need to keep in mind if you wish to go that way.

In this article, we discuss the benefits of having a partner on board, as well as the 8 best kept secrets to structure a partnership that is both efficient and rewarding. So let’s get started!

5 Benefits of a Partnership

More Resources

Running any business smoothly, big or small, usually depends on one thing only: the regular availability of resources. If you have a person who is ready to share the financial burden and who has similar goals and work ethic, then pooling your resources may be the best way to go. (The more, the merrier, right?)

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Related: 5 Top Tips for Creating a Mutually Beneficial Real Estate Partnership

The Power of Networking

This is a crucial superpower. The importance of networking cannot be stressed enough. For any business to grow, it needs a constant push. When you enter into a partnership, your partner can bring in strong contacts that could be utilized for further growth and expansion of the business. And before you know it, these extended contacts end up playing crucial roles in the success of your business. Sometimes they become team leaders; other times they become clients.

Sharper Analysis

How many times have we taken a decision and doubted it later? We’ve all been there. The ability to analyze the worth of a product, property, or location can be an extremely daunting task. However, when you have two or more heads working together and analyzing the same issues, it becomes a total cakewalk. Maybe not a cakewalk, but it certainly becomes a lot easier. Not only this, but a good partner will also help you zero in on possible solutions to the issues. Having that second pair of eyes can make all the difference.

Talent Pool

Every partner brings in their own distinct skill set and talents. While one might be a great at working with numbers, the other might be a sales genius. When you set out to build a successful business, all talent you can get ahold of counts. After all, talent, when combined with hard work, always yields results.

Risk Sharing

I get it. Not everyone is a born daredevil, risking it all and living life on the edge. Most of us like to play it safe. However, when it comes to business, risk is an inevitable truth. That business partner can bear that risk with you and even if there’s never any issue, give you the feeling that you’re in it together.

8 Tips to Create a Successful Partnership

So, having a partner is great. We’ve established that. But that doesn’t mean that any partnership will just go smoothly as soon as you start. Quite the opposite. Partnerships are hard work, and it’s best to know how to avoid certain pitfalls from the get go. So now you might be curious to know what goes into making a partnership successful. And how should you structure an effective partnership? Well, brace yourselves, for you are about to learn 8 best kept secrets to structure a partnership. You’re welcome!

Keep it simple.

There are several ways to structure a partnership. However, the most efficient way of doing so is by keeping it simple, transparent, and uncomplicated. It is as simple as that! Clearly chalk out the main aim of the partnership and the end goals, so that everyone is on the same page. Do not underestimate this part. Make sure you’ve gone over your expectations about the work you’re expecting the other to do, and have your partner do the same. Transparency is key, so make sure communication between partners is as smooth as possible.

Choose: general or limited partnership.

These are the two types of partnerships. Each joint venture has to choose which type would work the best. Both types of partnerships have a completely different structuring and are used for different purposes. If you and your partner enter into a partnership to make profits and each partner is liable for any debts on behalf of the business, this is what you’re looking for.

Limited Partnerships, on the other hand, are comprised of one general partner and one limited partner. In this, the limited partner is a silent partner whose main role is to provide cash or other forms of equity. This partner has no say in the functioning of the business. A limited partnership can only be formed by creating a formal agreement and filing certain documents with the local Secretary of State’s office.

Related: The Biggest Real Estate Moguls Relied on Partnerships. Here’s Why You Should, Too.

Write a business plan.

Many may not find it productive to make a business plan, but it goes a long way in helping you structure your partnership. It serves as a great road map and helps with the careful implementation of everything you need to generate growth. It also helps break the big overall goal into smaller achievable units. But there’s one thing that’s always overlooked. A business plan is a great idea because it helps to align the partners on the goals. It spells out who does what and when do they do it.

Choose a name together.

What’s in the name? Well a lot! Often the name of the firm explains the business partnership. But more importantly, the name is something both partners will have to agree on. Sometimes this can be very personal, and it’s absolutely key to consider each other’s stance on this. Once you find a suitable name to represent your business and partnership, the next step is to register the name. Now, this is important! Register it both online and with the local government body. Also, it would be a good idea to get a trademark for your partnership.

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Get your federal employer identification number.

Do not forget this one. It seems like a small thing, but it isn’t. The EIN or federal employer identification number plays an extremely crucial role when structuring the partnership. The EIN number changes with each new partner joining the enterprise.

Create a partnership agreement.

So you met this awesome potential partner. You’ve even become mates, which is great. But now you’re looking to start making money together, and that’s where things get serious. It will seem tough to propose this, especially if you’re close, but there’s no way I would ever enter a partnership without any agreement in place. It’s a typical beginner mistake and one that often comes with dire consequences. Jot down how you would spend the money, how the partners will be paid, how the losses and profits will be shared, who does what, and how much time each will be spending. Make sure you outline what happens if someone doesn’t honor the agreement.

Assign roles.

It’s important to assign roles at the very beginning of the partnership. Determine who is going to sign the contracts, the voting rights of each partner, etc. Also, set rules on inclusion of new partners and their roles in the functioning of the business. Another important aspect to consider is salaries. Unlike profits, salaries do not need be the same for each partner. They can vary based on the role each plays; they may even be commission based.

Have a robust exit strategy.

This usually gets lost when you’re going at it alone. But, when you’ve entered a partnership, having an exit strategy is something you should really consider. If things don’t go as planned and the partnership has to be dissolved, it is important to have a sound exit strategy in place. This needs to be drawn up at the very start of the partnership, so that it may be fair. And you don’t regret it later! Everything starting from how the assets will be divided to how the confidential details of the firm would be handled should be chalked out. It should also include points to describe what happens if a partner decides to retire, goes bankrupt, or dies.

With the right partner, a business can reach newer heights and achieve greater milestones. You know what they say — a great team is worth more than the sum of its parts. Try to achieve that, and you’ll be good. Just make sure you take the advice above into account. It’ll save your from a lot of pain and issues.

Investors: Do you work with a partner? Any tips you’d add to this list?

Be sure to comment below!