There are many methods that are involved in a real estate business partnership. The following are the different kinds of real estate partnerships that you can choose to enter into:
- Real Estate Investment Trust (REIT)
- Tenant in Common (TIC)
- Limited Liability Partnership (LLP)
- Limited Liability Company (LLC)
- Limited Partnership (LP)
The LLC is generally the most preferred partnership as far as real estate relations are concerned. An LLC gives liability protection and management flexibility to its owners. Partnerships usually work best when all sides have similar investment goals, some level of experience, are not dependant on the income to live, and have thoughtfully planned out an adequate partnership structure.
Before plunging into property investment with a partner, it is essential to have a detailed real estate partnership agreement. Trust between partners is vital and can be established and reiterated through consistent auditable reporting, as well as regularly scheduled meetings and communication. Drafting a written operating agreement as an investing group is the best way to achieve success in your partnership. Here is a list of important clauses that you should include in your operating agreement:
- 1) Goals of the company
- 2) How partnership will be allocated
- 3) The initial contribution of its investors
- 4) Nature of the entity-LLP, LLC, LP, etc.
- 5) How decisions will be made
- 6) The kind of development that will be carried out on the property
- 7) Who, if anyone, will be the managing partner and what his/her term, duties, responsibilities, compensation, process of removal, etc. are
- 8) Details relating to tax matters
- 9) Allocation of profits and losses
- 10) What will happen upon the death of partner
- 11) How disputes will be resolved
It is important to keep in mind that investing in real estate, whether alone or as a part of a partnership, is risky, unpredictable business. Getting involved in a real estate partnership may appear to be a safer route, but it is essential to have mutual trust and understanding amongst the investors.