Business partnerships can be mutually beneficial, reciprocally profitable, almost symbiotic relationships – or they can be frustratingly, devastatingly disastrous. It all depends on . . . well, a lot of things. If you can find a trustworthy partner who can supply what you’re lacking, then it’s probably a good idea. Just be careful and first consider these pros and cons of investment partnerships .
First, let’s consider the drawback and downsides of investment partnerships . . .
The first thing to consider is that you will be sharing the profit and probably will not be making what you would if you were operating on your own. There’s the further question of the percentage-wise profit split – for example, a 50/50 partnership or a 30/70 partnership. But however it works out, you won’t be keeping all the profits for yourself.
Investment partnerships in almost always and inevitably involve tax complications. Tax responsibilities will have to be split between or among the partners according to the role each plays within the partnership and the agreed-upon profit percentage. It’s always a good idea to consult with a tax professional before taking on a partner or partners.
You will also have to decide which partner controls various aspects of the business – the finances, the properties, the buying, and the planning. In a partnership, you will no longer have full control of all these matters yourself. Every step and every decision will require consulting with your partner(s) first. So you need to decide whether you prefer full control or can live with limited control.
Now, let’s see what is good about investment partnerships . . .
One of the great things about investment partnerships is that the risk is shared – no single person has to shoulder the whole burden of financial risk. Your risk will not exceed your percentage share of the business. And with shared risk comes the ability and confidence to take investment chances that can result in far greater profits.
Similarly, a partnership offers the advantage of increased resources. This doesn’t just mean more money, greater operating capital, but more and broader knowledge, skills, and expertise. Ideally, you would want to partner with someone who can bring financial resources to the partnership. Still, in many cases, knowledge and skills can be far more valuable resources and assets than mere money. You just need to look carefully at what you lack and what, as a consequence, would be most valuable in a partner.
DIVISION OF LABOR
A related pro of investment partnerships in is the natural division of labor that will occur. As a real estate investor, you will have to wear a bunch of different hats, but you will find more success if you are able to wear only those hats that fit you well. With a partner, you can concentrate on the aspects of the business that you are good at, and your partner can do the other things that she is good at.
This also results in shared accountability between or among partners. And with partners accountable to each other/one another, the likelihood of disastrous mistakes is reduced.
Now, after reading this overview of the pros and cons of investment partnerships, you still have a decision to make. Is a partnership right for you and your investment needs, and do you have a backup plan? A qualified real estate professional can be an invaluable asset here. W6 Property Solutions is ready and equipped to help you make that crucial decision.