Money Partners

Introduction

The most successful period in my real estate investing career came after I formed a partnership with a close family member who supplied the funds for the purpose of purchasing property which was then renovated and rented out. Over some 15 years we built a portfolio of 12 properties valued at around $3M. The key of course was finding a money partner who could see the value in funding numerous projects with me. This is a dream situation for any would-be investor with little funds .

Why would someone fund a project and then give 30, 40 or 50% who put no money in? It’s because they can reap very high returns from real estate investing without being directly involved in the process. Instead of leaving money in a low interest bank account, they’ll receive a much better return on their money as a Money Partner. Or perhaps they simply want to help a relative to get their first home or first investment property.

A money partner may end up becoming a money partner for many projects with the same investor,  if, after assessing the results of their first project, and assuming no conflict or problems arose during the project, it is seen as a profitable venture.

Type of Partnership – Active or Passive

There are many forms of partnerships that an investor can become involved in but for this article, we are referring to a situation where one party supplies the funds to purchase property and the other party with the experience and expertise renovates a property or oversees a development. The split of profits can be whatever the partners agree to – often 50/50 or 60/40 – as long as both partners are happy with what they get in return.

An active partnership occurs when both partners take on a good part of the workload on an ongoing basis until the project is complete. The tasks would normally, but not necessarily, be split according to the strengths of each partner.

In my situation, the money partner was not actively participating in the project beyond supplying the funds, and was therefore a passive partner, and importantly, a Long Term Money Partner.

Pros of a Money Partner

  • Having a money partner means you can get a deal up and running
  • You can often go for bigger real estate deals
  • The risk is shared and therefore reduced
  • The workload can be shared depending on knowledge and expertise
  • Experienced partners can enhance a projects potential

Cons of a Money Partner

  • Profits are split according to the agreement
  • You don’t have total control of a project
  • You may have to report to your partner about a project’s progress
  • Conflict may arise due to management styles or varying expectations

You must weigh up the various pros and cons before committing yourself to any partner and choose what is right for you. Don’t choose a partner simply due to convenience. For example, don’t simply go with the first person who shows interest in being a partner just because you’re impatient to get started. That isn’t the way to begin a business relationship. Carefully consider the other party’s  strengths and weaknesses; are your goals similar; will you be able to work together; do you trust them to stick to the agreement?

Legal Agreements

Be sure you have a detailed, clear agreement in place before starting a project, meaning, you should have a real estate attorney involved in writing up the agreement. To protect both partners, the agreement must spell out the risks, the responsibilities, the profit split, the tax implications, legal entitlements etc. There can be risks in any business undertaking so be wise and don’t skip having the correct paperwork in place. 

Finding Money Partners

Those closest to you are a good place to start in the search for a partner.

  • Parents
  • Relatives
  • Friends
  • Investors you know
  • RE Investors Clubs
  • Social Media
  • CPA’s and Attorneys

Conclusion

Whether it’s to give someone a start in real estate, or to help fund the next deal, finding a Money Partner will speed up the process and more often than not provide higher profit margins. A Money Partner can be the difference between success and failure. Without one, many people will not even get started.