Middle Tennessee Real Estate News

Do's and don'ts of real estate investment partnerships
• Williamson A.M. news services • August 1, 2008
Partnering with others on a real estate investment is a great way to create new opportunities.
However, while partnering in real estate investments can be a financial and lifestyle boon, there are many nuances one must understand before taking the real estate partnership plunge.
Below, Robert Jenson, CEO of The Jenson Group, sheds light on some do's and don'ts of real estate joint ventures.
Do put everything in writing
Don't let a miscommunication cost you a relationship. Purchasing joint property can be an exciting time, but it is also imperative to document all deal terms, arrangements and agreements.
Mutual understandings that are clear today may become murky years down the road, so thwart potential conflicts by writing all plans out in advance.
Do plan ahead
While cliché, it's true: fail to plan, plan to fail.
For a shared property, even before the deal is done buyers should map out a yearly property usage calendar in advance along with schedules for cleaning service, payment of utility and other bills and the like to ensure everyone will be in agreement before being locked into a mortgage.
For investment properties, this would also include when to pull money out to purchase another, when to sell and other such concerns.
Do anticipate challenges, obstacles
Might you have to evict a tenant? Is your vacation property in a declining market? Is your partner no longer able to make their share of the mortgage payment?
Plan for worst-case scenarios in advance and have contingencies in place . . . or, at least, considered among all parties involved.
Do create an exit strategy
How will the group decide when it's time to sell the joint venture property?
Will there be an option for one partner to buy the other out and, if so, how exactly will that work?
Planning the property sale is equally as important as planning for its purchase.
Put all options on the table — and in writing — before signing on the dotted line.
Do stay mindful of taxes
It's wise to treat the property and partnership at large like a small business, with monthly Profit and Loss statements.
Who will take advantage of the write-offs that property can provide?
Will this be split 50/50 or other arrangement?
Meet with your CPA before the purchasing to determine the tax and other fiscal implications of the purchase.
Don't attempt to execute the deal among yourselves
Purchasing property is a complicated financial transaction under normal circumstances, and a joint ownership situation only adds to that complexity. A buyer's real estate agent can appropriately structure the price and terms and otherwise save the group time, hassles and money in the process. It's also advisable to hire an attorney to legally structure the partnership, perhaps by establishing a LLC that, in addition to providing liability protection, will also provide taxation and other benefits for the co-owners.
Don't rest on the laurels of the relationship
Because you know and perhaps even love your partner(s), don't be lulled into a false sense of security — treat the transaction like the serious business deal that it is. It's wise to work through worst-case scenarios in advance to avoid infighting should an ominous situation come to pass.
Don't play the blame game
Once the ink is dry and escrow has closed, your partnership is official for better or for worse. Now it's time to function as a team, particularly when the going gets tough. Experiencing some problems with your tenant? Is your vacation home a money pit? Rather than blaming and pointing fingers, remember you're all working toward the same goal and that, ultimately, everyone wants to get the problem resolved. Be receptive to other ideas, and remember you're immersed in a democracy, not a dictatorship.
Don't let your partner slide
Is your partner not holding up to their end of the deal? Or are you just doing far more work on the yard or home improvements than you had agreed to . . . in writing? Are they not paying bills or covering other debts?
Rather than getting angry and argumentative, simply pull out the documentation you (hopefully) put in place at the onset to remind the partner of his or her obligations. If the problems persist despite your best attempts, remember that your credit and financial future is on the line.
Your last resort, an unfortunate recourse, would be to take the matter up in a court of law.