With house prices soaring, buying an investment property on your own can be nearly impossible. Not only do you need to have deep pockets for a down payment, you also need the time and energy to manage the entire process from beginning to end.
For people looking to earn a quick buck, owning an investment property often sounds great on paper, but when it actually comes time to execute, the risk and associated work to manage the investment property, often outweighs the reward.
Fortunately, real estate partnerships can help limit that risk and do the heavy lifting for you. To help you understand the benefits and drawbacks of a real estate partnership, I’ve put together a short list for you to read.
Benefits of a Real Estate Investment Partnership
Access to capital: One of the biggest challenges real estate investors face is having enough capital to purchase a property. By bringing in a partner who has the financial means to purchase a property it can help resolve this issue and help you get into the market.
Reducing the risk: Another financial benefit of a real estate partnership is the ability to split the risk monetarily. While this isn’t always possible, investing in real estate becomes a lot easier when the risk is spread out evenly.
Real estate experience: Many real estate investors who have the capital to purchase a home don’t often have the real estate expertise or experience to make smart decisions. By bringing in a partner with the right mix of real estate expertise and experience it can help you find the right property in the right location, analyze the potential investment and manage the purchase process.
Peace of mind: Depending on the terms of your agreement, it can be advantageous to find a partner who wants to be responsible for the day-to-day operations of the investment property, so you don’t have to worry about your investment. This can be extremely beneficial for an investor who is busy and doesn’t have the time or energy to manage another property.
Financial rewards: Once the time comes to sell the property you will be financially rewarded for your initial investment by getting it back, plus earning a healthy return on the remaining profits or equity from the home. Depending on the partnership, you will also receive a portion of the monthly cash flow from tenants who pay rent, similar to a dividend.
Drawbacks of a Real Estate Investment Partnership
Lack of liquidity: By investing in a real estate partnership it typically means your money is locked up in a long-term investment. This means that you may not be able to sell the property when you want to. This can be problematic if you need the money or want to reinvest it somewhere else.
No guarantee: While many people believe investing in real estate is safer than the stock market there is no guarantee you will earn a profit or even get your money back from your initial investment. Like the stock market, real estate markets fluctuate, and renovation costs can go over budget, which could impact your financial returns.
Risk of capital call: One of the biggest risks in any real estate partnership is a project or renovation going over budget. In many cases you will be obligated to contribute more money to cover the extra costs. This can often cause unexpected stress and friction in your partnership, so make sure you are prepared for this and there is open communication.
Want to learn more? Reach out to us with any real estate investment questions and to learn more about real estate investing opportunities in Durham.