Like many in California, you may be learning about the benefits of including real estate investment in your retirement portfolio. On the other hand, you may simply be excited by the many options available and hope to build a business through residential and commercial properties.
Whatever your goals, the first roadblock you may encounter is obtaining the resources necessary to begin purchasing the investment properties. You may be considering the option of taking on a partner in your investments. There certainly are many advantages to forming a partnership, especially if you have a particular person in mind with whom you would like to work. However, understanding the drawbacks to a partnership is essential to making a wise decision.
The advantages of a partnership
Your partner may not only supply you with the funds and the worthy credit score you need to acquire investment real estate, but the right candidate may also bring critical skills to the operation, including investment experience, property management skills or a network of valuable connections. A successful partner will ideally make up for what you lack.
As in a marriage, a partnership allows you to share the load. You and your partner can divide the tremendous amount of work involved in owning and managing investment property. You will also reduce the chance of missing or forgetting critical tasks since your partner will be a second set of eyes overseeing the operation. This will be most helpful if you intend to own multiple properties.
When dividing the work and responsibility, you also divide the profits. Depending on the type of partnership you form and how you and your partner agree to divide the money, you may make less than half of what you would alone. This could be even less if you decide to take on multiple partners. You also relinquish a fair amount of control over the investment business. Every decision you make will involve your partner, and there may be times when you disagree.
Another consideration when taking on an investment partner is the amount of complication you may be adding to your tax burden. Dividing the tax responsibilities can be complex and confusing enough to require legal assistance to avoid conflict with federal, state and local tax authorities.
With the many factors involved in forming a partnership for your real estate investment, you may benefit from sound legal advice, especially from an attorney with experience in many aspects of real estate and investment law.