Partnerships- The good and the bad

3 Replies

My friend and I are considering forming a partnership to begin buying MFH buy and hold.

He has the cash and I have the credit (He isn't bankable, he just finished grad school and is looking for a job. The cash is from an inheritance). Most likely the MFH would be under my name with a legal partnership agreement put in place stating that he is entitled to 50% of everything in the property including the debt.

Without this partnership I would have to wait at least another year or so to make a purchase. 

So my question is to all of those who have invested in RE with a partner, what is the good and the bad of a partnership? Anything I should consider? 

Originally posted by @Rigo V. :

My friend and I are considering forming a partnership to begin buying MFH buy and hold.

He has the cash and I have the credit (He isn't bankable, he just finished grad school and is looking for a job. The cash is from an inheritance). Most likely the MFH would be under my name with a legal partnership agreement put in place stating that he is entitled to 50% of everything in the property including the debt.

Without this partnership I would have to wait at least another year or so to make a purchase. 

So my question is to all of those who have invested in RE with a partner, what is the good and the bad of a partnership? Anything I should consider? 

I always recommend that people figure out what they would do in regards to the four "Ds" of partnerships before getting involved in one.


Death - What happens if one of you dies while the partnership is still active? Are spouses involved?

Divorce - What happens if one of you gets divorced? Does that mean the ex spouse now gets 50% and you have to deal with both of them? 


Disinterest - Fast forward 5 years. What if one of you is no longer interested in real estate? What happens?


Drugs- What happens if one of you becomes an addict. What happens to the partnership?

@Filipe Pereira Thanks for your response. I will absolutely sit down with him and go over these scenarios. 

My biggest angst is not getting started BUT I also want to make sure I get started without putting myself in a position I will regret down the road. 

@Rigo V. We have been doing this for over 20 years, and everyone of our projects has been in a partnership. Partnership is a great way to expand in areas which you wouldn't normally be able to. A friend who runs a nationwide real estate organization was asked why he partners on deals when he has the means to do them himself. His response, "Because I can do more deals by partnering." Partnering is often associated with cash, but that is not always the case. We are currently partnering with a $7.0b company to manage our self storage facilities. Why, they can manage it better than us. We can build it, they can manage it. Its a win win. That is the key, is to create a win win scenario for both parties. To that end, I would suggest putting the building into a LLC rather than your name. Right off the bat, knowing or unknowing, you have created a imbalance in the partnership (guarantees, title, etc). Work out the terms within the LLC. Banks will accept the LLC.

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