Should I buy more rentals alone or with a partner?

Question

I already own one property. I want to invest in more duplexes. Should I get a partner or do it alone? I have many business friends approach me wanting to partner with me. Also where I live the market is booming! Should I build?

Michael Haas · Answer

If you go into a partnership with a verbal agreement like some commenters mention then yes, you will most definitely be screwed and would be better off solo. The prosperity of your partnerships will probably be proportional to the amount of thought you put into structuring the relationship, so don’t wing it. Account Closed’s list of contingencies you need to plan for is a great place to start

In my market (Seattle)  it can be hard to bootstrap your way to more than a couple properties without a very strong W-2 or a wealthy network.  If the partnership allows you to target higher value properties or more properties than you could on your own (adjusted for your ownership percentage of course- if you can buy one house solo you’d want to be able to buy 3-4 50-50 with a partner to make it worth the risk) then there’s no reason not to do it.

The real question isn’t whether to partner though, it’s who to partner with.

Michael King · Answer

I'd go it alone. I partnered with my brother twice in my life, to buy real estate. The first time I was 18 and it turned sour. After several years I wanted to sell out to him so I could buy a residence. He paid me back every penny I contributed, and not a penny more, despite the value climbing tremendously in a boom. Should have learned that time.

The next time I gave him a good amount of cash as a silent partner in 6 properties. We had a verbal agreement that 1 of those properties would become mine eventually. When that day came, he turned on his word and refused to follow through. After many months of back and forth, arguing, he sent me my money back. Again, every penny. But he screwed me out of $100,000 at the same time. The last words he said to me were, "I blame you for that mess." Strange use of the word blame I think.

Don't do business with friends or family, they say. If I never have to speak another word to that lying, cheating SOB, it's a win in my mind.

So. What if your partner wants out and you're not ready to buy him or her or them out? Will you be ready to sell? What if you disagree about the materials used in any repairs or refurbs?

If you can go it alone and you are successful, you can be proud of your achievements. If you are not successful, you can blame yourself. For me, unless it was someone I really, really (no, really) trusted, then I go it alone.

Jermell Shavers · Answer

@Audrey Lotz. Simple answer NO!!! Someone is always gonna outwork somebody and then they want more with you just starting your portfolio and having limited resources don’t do it. I did it unwillingly and it ended very bad court everything I won but it was resources I didn’t and shouldn’t have had to use. Partner/Cousins mother thought it was worth way than what it actually was lol. Long story short they gave me 32k for a 20k house with a major foundation issue and a ton of other issues. Then got mad when they couldn’t sell it.

Account Closed · Answer

I'm very familiar with and like the Tri-Cities. I'm from Seattle originally and have bought all over the state. If you will be retiring in that area, it's a great place to invest long term. As much as possible own the properties yourself. However, if you have a partner that you'd jump on a grenade for (or a GBU-10 Paveway II in your case) then by all means team up.

Make sure the paperwork (agreement) states clearly what happens if one of you wants out in the future, who has the right to decide to sell the property, how the valuation of the property will be made (2 different appraisals?), how you will split expenses, profits, tax writeoffs, maintenance, repairs, what happens if one of you marries (or is married) and the spouse decides they want it sold, or there is a divorce, in fact even how to take title (Washington is a community property state) or if it should go into foreclosure what remedies, etc and on and on.

It can all be worked out and these questions are dealt with every day. You just need to talk to a real estate attorney about how best to set it up for you and your partner. A Joint Venture Agreement is probably superior to a partnership. I suggest you retain 51% control (as I do) so that someone (you)  can make decisions when necessary. You can still split profits and expenses 50/50.

But do remember, your partner won't be under your command. ;-) It's a different experience. When I was working for a fortune 200 company selling very sophisticated computers to Hanford, Boeing and the military I had a co-worker who was a reserve Marine officer. He was frustrated that the guys in the office didn't respond when he barked demands. He said the Marines were easier, "I'm told what to do so I follow orders and then I give orders to those under me; but in the business world the other guy gets a say and that makes it tough to get things done." I thought that was a classic line and is exactly how business is. Expect your partner to have a say.

Audrey Lotz · Answer

@Jermell Shavers I have had my rental for 5 years now. Think it is time to purchase more duplexes. Just wanted to see the pros and cons. And it’s all been cons so question answered.

Audrey Lotz · Answer

@Jermell Shavers

Just what I needed to hear! I appreciate the reply.

Account Closed · Answer

I know that your question is sincere and people often ask the same question.

The problem is you don't give us any idea of your goals, you resources, your location, how reliable your friends are, whether you like the type of investing, how much time you are willing to spend on managing the properties, what you risk tolerance is (sometimes people lose money), etc, etc

So, no one knows the answer to your questions but you.

Lynnette E. · Answer

Only you know the answer to this question.  You need to consider what your partners would bring into the deal and how much you need that (skill, time, $, whatever) to make the deal happen.  What is everyone's role?

And remember when you have partners you share the profit, and eventually you need to liquidate the asset so everyone needs to be on the same goal with the liquidation, how the $ is shared, how the work is shared, timing for when it is over.

Audrey Lotz · Answer

@Michael King

You made very solid points! Thank you for your input.

Audrey Lotz · Answer

@Mike M.

Sorry I wasn’t very detailed in my question. But I am active duty in the Air Force and I move around a lot. I have a property manger managing my rental. The place is Tri Cities Washington where my hometown is at and where houses are flying up like crazy. I’ve had my rental for 5 years now and been very fortunate to have great tenants.

Should I buy more rentals alone or with a partner?

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