Every multifamily property investor knows that there are inherent risks when it comes to investing in real estate. To help mitigate these risks and bring more resources to the table, many investors work with an investment partner. There are things to consider before buying an investment property with a partner, however. You’ll want to ensure compatibility—personally and professionally—to improve the odds that the partnership will work in line with your personalities, values, strategy, and financial goals.
Confirm Compatibility Before Buying Investment Property with a Partner
As in any relationship, you’ll want a multifamily property investment partner that complements your personality, personal and professional strengths, and your investment goals. Gaining a clear understanding of the considerations below can help ensure a successful, profitable business relationship. Strive for the following:
Complementary Values. You’ll want to make sure that you and your business partner will get along and that the partnership is based on honesty and trust. You should agree to always operate in a respectful and ethical manner, especially when it comes to finances and sharing news of business opportunities. You’ll be communicating and working with builders, city planners, zoning boards, etc., and will want to do so with integrity.
Similar Communication Styles. You must be able to clearly convey your thoughts, ideas, and concerns to your partner at all times, and your partner should be able to do the same. A breakdown in communication can be catastrophic—deals could be missed and a great deal of money could be lost. While it may be tempting to communicate by phone and email the majority of the time, fight that urge. When possible, it is often better to hold regular, face-to-face meetings to stay on track, get important questions answered, and respond thoughtfully to each other’s concerns.
A Clear Decision-Making Process. If you and your investment partner don’t share the same business control and analysis processes, conflicts will result. At your first meeting, be prepared to articulate your business strategy and decision-making process preferences. For example, how will you decide whether to acquire or develop a multifamily property? Discuss how you prefer to handle the challenges multifamily property investors face, and why your method might be better than your prospective partner’s method. Be sure to back your preferences with appropriate and reliable data. An honest pre-partnership discussion that covers these bases will lead to much smoother and successful real estate ventures for both parties.
Shared Financial Goals and Vision. When considering finances, budget, strategies, and goals with an investment partner, you both need to be on the same page. For instance, will you agree to use a cash or accrual method of accounting for your real estate investment? How will you value multifamily properties and make final investment choices? How will you analyze investment deals to avoid costly mistakes? How will you hold each other accountable to the budget? All of these questions must be asked and answered to the satisfaction of both of you.
A Solid Exit Plan. Partnerships rarely last forever, so you’ll want to take steps at the beginning to form and agree on an exit strategy, which will likely include one of you buying out the other. There are other reasons to exit a partnership, however, including disagreement over operations or finances and, of course, death. Discussing your exit early will give you peace of mind from the start. Always seek the advice of an experienced business attorney to help articulate the details.
Benefits of Buying an Investment Property with a Partner
Real estate investment partnerships have been formed countless times over many centuries because of the benefits partners afford. These benefits are many and should not be overlooked. A partnership provides:
More Resources. The three main resources in any real estate deal are time, money, and experience. Typically, investors are gifted in at least two of those areas. For example, you may have the time and money to invest in a multifamily property, but lack the experience. Your partner might have the experience and time, but lack the funds. Additionally, you and your partner will likely bring to the relationship a number of valuable contacts. The more contacts you have the more access you and your partner will have to resources such as trustworthy contractors, attorneys, brokers, and more, which can save you both time and money.
Division of Risk. An investment partner can help limit risk exposure. Economic risk, liquidity risk, market risk, and interest rate risk can all be shared with a partner as you build your multifamily property portfolio. By dividing risk you can experience the upside potential of a particular property investment without shouldering the entire burden alone.
Division of Labor. Owning an investment property is a labor-intensive endeavor. By creating a partnership, you can divide responsibilities and tasks, such as business development, sales and marketing, property management, accounting, etc. While you’ll likely outsource some of these responsibilities, such as property management, to others, you and your partner can offset costs by doing other tasks yourselves.
More Opportunity. A partnership could provide the opportunity to purchase larger properties and diversify or build a portfolio. As time goes on, you’ll have more income and assets to back the loan through your partnership. Banks are often quicker to lend money to partnerships than sole proprietorships. You will also have the luxury of bouncing ideas off your partner—getting a second opinion is never a bad idea.
Whether you’re a seasoned investor or a first-time multifamily property investor, by considering an investment partner who complements your personality, is on board with your vision, and brings a lot to the business, you can take advantage of all that a partnership offers.
At CWS Capital Partners, we are a fully integrated multifamily real estate investment management firm that offers everything from due diligence and multifamily real estate valuation to transaction support and property management. We specialize in assisting our clients with 1031 exchanges, acquisitions, repositioning, and development. We also own and manage luxury multifamily investment communities in major markets around the country and employ a team of experts who can help you hone your investment strategy.
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The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.
All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.
Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.
Securities offered by CWS Capital Partners LLC are through an affiliated entity, CWS Investments. CWS Investments is a registered Broker Dealer, member FINRA, SIPC.