Establishing a Partnership for a Real Estate Deal

Earlier today I received an email from someone asking for help. She had found a property and a partner to purchase the property with, yet hadn’t figured out how to split the proceeds / profits / etc. The question is a good one, but I hope she was not asking it after the fact.

NEVER GET INTO A DEAL WITH PARTNERS WITHOUT HAVING A FORMALIZED REAL ESTATE PARTNERSHIP AGREEMENT

If you don’t take the time to work up a formalized agreement and purchase a property with partners, you can get yourself into some real trouble.

Make sure you consider the following things in putting this real estate partnership document together:

• Who is putting up funds and how much are they giving?
• What is the percentage split of funds?
• Who will be actively managing the property?
• What will each partner’s role be in the day to day care of the property? (consider little things like who wants to be woken up at 3 AM if the is a problem with the property)
• Who will be on title?
• Who will apply for the loan?
• How will expenses be covered?
• How will any monthly profits be split?
• If sold, how will the proceeds be split?

Break things down even further and have a clear understanding of all roles of all parties. When you have figured out the roles and amounts of money that are put up for the deal, negotiate a fair balance between these to come up with percentage splits in profits, proceeds, ownership, etc. Write these down in the partnership agreement. Once you’ve completed the document, pay the extra money and have an attorney review it to be sure both parties are protected. Then, and only then, should you move forward with a deal with partners.

Are there any other points that I’m missing . . . ?

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.