Commercial real estate investing can be a lucrative and exciting endeavor. In fact, the commercial real estate industry is a huge driver of investment returns and economic growth with an average 9.5% return on investment. You can invest in a few ways, such as investing in a real estate mutual fund or investing in a REIT. Investors can participate in financing and big real estate deals. For people who are looking to make a direct real estate investment, but don’t have the connections or the time to make that happen successfully, a great option may be working with a general partner.
For new investors, commercial real estate investing may be a bit complicated to navigate. By working with a general partner, it may help new investors ease into the industry a little easier.
In this post, you’ll learn some quick real estate investment tips and tricks for making partner driven real estate investing work.
What Is a General Partnership in Real Estate?
General partnerships are unincorporated businesses that are operated by two or more individuals, where both partners have the same amount of control over the business. Both are also equally liable for the business’s debts.
Individuals use the “general partnership” business structure because it’s an easy and quick way for two or more individuals to start doing business with one another.
Why General Partners in Commercial Real Estate Matters
Individuals start general partnerships for two primary reasons:
1. They Are Simple to Form
You can easily get a general partnership up and running with a simple verbal agreement. When you compare this with incorporating or forming an LLP, forming a general partnership is easy, fast, and cheap.
2. They May Help You Lower Your Tax Bill
As a general partner, any profits made become personal assets and the IRS will tax them at the personal income tax rate. When filing your tax return, you may enjoy a lower tax bill than you would if you were incorporated.
5 Real Estate Investment Tips You Should Consider
Some partner driven real estate investing tips you can follow include:
1. Select a Partner with Complementary Skills
When you and your partner can bring different strengths to the table, it will help increase the power of your partnership right out of the gate. For instance, if you’re a tech expert, but you tend to be shy, and you want to start an online business, it may be in your best interest to choose a partner with marketing, sales, and people skills. By doing this, you can both focus on doing what you’re good at.
2. Define Each Partner’s Responsibilities and Role Clearly
Running an informal organization where both partners do what’s required at that particular moment may work during the earlier startup stages, but it won’t work in the long-term. It’s important to define both partner’s job duties and title to help eliminate any disagreements by providing each partner with control over their own domain.
3. Create a Partnership Agreement
After you come up with a business name, it’s time to draft the partnership agreement. Both partners should review and sign this partnership agreement. While signing this agreement is required by law, it may help toward diffusing conflicts that may arise in the future between partners. In this agreement, you should detail and fully cover:
- The partnership name and what type of business you’re operating
- The reason behind the partnership
- How responsibilities will be shared between the partners and each one’s ownership percentage
- Each partner’s capital contribution
- The way each partner determines their share of the profits
- What will occur in the event of additional partner contributions
- The actions that will warrant loss of the partnership
- The partners’ management duties
- How the partners split debts, losses, and other liabilities
- How to change or pass ownership
- Who will settle disagreements
- What occurs in the event of a partner’s death
- What needs to occur to dissolve the partnership
- How partnership assets will be divided upon dissolution
- What the monetary amount will be for a buyout
4. Prioritize Communication and Transparency
Commercial real estate investors seeking general partnership prioritize communication. Does the general partner have an investor portal? What way will they communicate with you during the investment process?
These can be difficult problems to talk about, particularly when you’re eager to get your real estate business going. However, unless you lay the foundation down for a long-term business partnership, you might not be able to get your new real estate business off the ground.
5. Have a Track Record Together
To succeed as partners, it’s not necessary for you to have operated or worked together before. But, there should be a track record of both of you making it through similar challenges successfully together. Find a partner who you had in the past:
- Survived hard times with
- Handled conflicts with
- Met common goals with
Committing to a commercial real estate partnership shouldn’t be something you take lightly, but instead, should be a critical element to a successful commercial real estate business. It’s important to align yourself with the ideal partner. Following these real estate investment tips may help.
Keep in mind, it’s just as likely that poor partner driven real estate investing structuring may actually cripple growth of your real estate business. Therefore, it would be in your best interest to take your time researching and vetting potential general partner candidates. You may even want to interview them and ask them a series of qualifying questions. Only then will you realize the genuine value a good partnership provides.
Accessing a pool of general (and limited) partners couldn’t be any easier. Here at EXtrance, we provide a way for you to find and connect with general partners to help increase investment opportunities. We provide a transparent and secure platform that connects general and limited partners for success. Through the use of EXtrance, you’ll gain access to potential investment opportunities, partnerships, communication tools, analytics, critical documentation, and much more. Let us help you with your partner driven real estate investing needs. Contact us today to learn more about EXtrance and the services we provide.