Attempting to go solo when buying homes to use for rental income can be a little overwhelming. Not every person is a born business manager and can struggle with what steps to take in order to purchase investment property. Some people who ask should I form a real estate joint venture can have a lot of questions about how to begin in the real estate industry.
Real Estate Joint Venture Defined
When two or more investors come together in agreement, a joint venture is formed. A contract is typically signed by both parties that specifies how investments will be made and what type of income can be earned. Most agreements have a termination clause that helps each partner get out of the venture if he or she is no longer happy.
3 Pros of an Investment Joint Venture
3. Partners Have Resources
People who have experience when partnering in the housing industry often have resources that are not available to a beginner. From additional investors to attorneys to brokers of available real estate, a partner can be a great advantage when buying a first rental house.
2. Risks are Shared
A person who is considering buying an investment home although is worried about the risk can have this risk shared under a joint venture agreement. An equal or partial split of the investment dollars needed can be shared between each person to lessen the financial burden.
1. Time Saver
Doing all of the work alone is exhausting even for an experienced investor. When people enter into a strategic alliance, more of the work can be shared to reduce the time spent earning cash flow. This is one of the best time savers that a real estate investor will find in the industry.
3 Cons of a Strategic Alliance
3. Lack of Management
Although a two people can agree to lead together, one of the partners who has more experience must be able to lead into familiar territory. People who are a type A personality might not perform well in a non-leadership role. When invested funds are at stake, friction can cause lack of communication between partners. Management of the venture will likely be an issue.
2. All Parts are Not Equal
One person can have more funds than another or one partner can have more outside contacts. This strategy can be a disadvantage during any real estate venture. A good contract in the beginning can help prevent issue that arise during the purchase period of a rental home as well as throughout the life of the partnership.
A person can literally go through 20 or 30 potential partners before one that meets all criteria is selected. There are many good people who have the best of intentions although might not be right for an investment relationship. Going to real estate clubs, industry events or seminars does take time to find the right partner.