{"id":170800,"date":"2024-04-19T12:25:14","date_gmt":"2024-04-19T18:25:14","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=170800"},"modified":"2024-04-19T12:25:16","modified_gmt":"2024-04-19T18:25:16","slug":"details-you-need-to-work-out-before-partnering","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/details-you-need-to-work-out-before-partnering","title":{"rendered":"Partnering Is a Great Way to Invest\u2014As Long as You\u2019ve Worked Out These 13 Details"},"content":{"rendered":"\n

In the last 16+ years, I\u2019ve worked with many investors. Occasionally, I <\/span>am asked<\/span> about two or more people pooling their resources to buy properties. <\/span>This<\/span> can work, but there is a potential pitfall: assumptions.<\/span><\/p>\n\n\n\n

For example, suppose two friends decide to pool resources and invest together. They have known each other for many years, so no issues <\/span>are anticipated<\/span>.<\/span><\/p>\n\n\n\n

A few months later, the refrigerator dies at one of their properties, and one partner wants to install a used refrigerator to save money. The other wants to install a new refrigerator with a warranty. While this seems trivial, I have seen friends argue over less.<\/span><\/p>\n\n\n\n

What to Put in an Agreement<\/span><\/h2>\n\n\n\n

How do you minimize such future problems? By writing down and signing an agreement that covers as many potential issues as possible. <\/span><\/p>\n\n\n\n

I am not an attorney, but below are some items I\u2019ve seen on teaming agreements.<\/span><\/p>\n\n\n\n

Ownership interest<\/span><\/h3>\n\n\n\n

Clearly define the percentage of ownership each party has in the property. Usually, this <\/span>is based<\/span> on the proportion of the <\/span>down payment<\/span><\/a>, mortgage payments, and other costs each party contributes.<\/span><\/p>\n\n\n\n

Financing details<\/span><\/h3>\n\n\n\n

Define who will pay for what. <\/span>This<\/span> includes the <\/span>mortgage<\/span><\/a>, who will <\/span>be named<\/span> on the mortgage, and how you’ll split the mortgage payments. Also, define how you’ll share the acquisition costs, like the down payment, renovation, and closing costs.<\/span><\/p>\n\n\n\n

Payment responsibilities<\/span><\/h3>\n\n\n\n

Define how to divide and pay for regular costs like the mortgage, property taxes, insurance, homeowners association fees (if applicable), and upkeep expenses.<\/span><\/p>\n\n\n\n

Management and maintenance<\/span><\/h3>\n\n\n\n

Agree on how property maintenance, repairs, and improvements will be handled, including decision-making processes, funding for such activities, and responsibilities for performing or managing the work.<\/span><\/p>\n\n\n\n

Single decision point<\/span><\/h3>\n\n\n\n

As mentioned, I’ve seen situations where one person agreed to replace an appliance while another strongly opposed it. The result was the tenant was without a refrigerator for days and refused to pay rent. This kind of indecision is detrimental when running a business. There needs to be one individual making the final decisions.<\/span><\/p>\n\n\n\n

Dispute resolution<\/span><\/h3>\n\n\n\n

Define and agree upon a method for resolving disputes that may arise, such as mediation or arbitration, to avoid litigation.<\/span><\/p>\n\n\n\n

Change in marital status<\/span><\/h3>\n\n\n\n

What happens to the ownership if a party gets married? It\u2019s <\/span>important<\/span> to work this out in advance.<\/span><\/p>\n\n\n\n

Succession<\/span><\/h3>\n\n\n\n

Define what happens if one of the owners dies or if there is a divorce, etc.<\/span><\/p>\n\n\n\n

Exit strategy<\/span><\/h3>\n\n\n\n

Include <\/span>provisions for<\/span> what happens if one party wants to sell their interest in the property. <\/span>This<\/span> could involve a right of first refusal for the other party, buyout terms, and a method for determining the sale price.<\/span><\/p>\n\n\n\n

Rental and use<\/span><\/h3>\n\n\n\n

Define the rules for renting out the property or parts of it, including how income and expenses will <\/span>be divided<\/span>. Also, agree on how <\/span>the property will be used<\/span>, who can live there, and under what conditions.<\/span><\/p>\n\n\n\n

Contribution reconciliation<\/span><\/h3>\n\n\n\n

Implement a process for handling situations where one party cannot meet their financial obligations or if there are significant discrepancies in contributions toward expenses.<\/span><\/p>\n\n\n\n

Legal and professional fees<\/span><\/h3>\n\n\n\n

Decide how legal and other professional fees related to the purchase and management of the property will be shared.<\/span><\/p>\n\n\n\n

Signatures and legal advice<\/span><\/h3>\n\n\n\n

All parties must sign the agreement, and each party <\/span>is advised<\/span> to seek independent legal advice to understand their rights and obligations under the agreement fully.<\/span><\/p>\n\n\n\n

Final Thoughts<\/span><\/h2>\n\n\n\n

The hours you spend creating the agreement will likely save\u00a0both\u00a0your friendship and potential legal fees. Take the time and make sure you cover these important points.<\/span><\/p>\n\n\n\n \n

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In the last 16+ years, I\u2019ve worked with many investors. Occasionally, I am asked about two or more people pooling their resources to buy properties. This can work, but there is a potential pitfall: […]<\/p>\n","protected":false},"author":613715,"featured_media":170802,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7353],"tags":[],"class_list":["post-170800","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-partnerships"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/170800","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613715"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=170800"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/170800\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/170802"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=170800"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=170800"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=170800"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}