Among the potential drawbacks of a real estate investing partnership, there are three major disadvantages that every investor needs to think about. These disadvantages include: sharing control of the business, a more difficult decision-making process, and a much higher risk of disagreement and miscommunication.
1. Sharing Control
The idea of sharing tasks may seem good but the idea of sharing control can be a challenge for some investors. But it can’t be helped. If you want to divide and share the tasks that your real estate investing business demands, then you will also have to relinquish control over some of your daily operations. In a partnership, you’ll need to have a sit down with your partner about how the tasks are to be shared, and this should include what has to happen when tasks aren’t completed to both partners’ satisfaction. If divisions and responsibilities are not clearly spelled out for each partner, important tasks could be left undone or overlooked altogether. Sharing control of an investing business requires a high level of coordination and communication for the partnership to be a success. This means that each partner should have a strong commitment to fulfilling their respective role. Even when everything is going well, sharing the responsibilities of a business can be a significant challenge and should be given the proper amount of focus.
2. More Difficult Decision-Making
Together with the intricacies of having a partnership, it also makes the decision-making process a lot more complicated. Many investors enjoy the independence that comes with making important operational and financial decisions on their own. But in a partnership, both partners must be involved in all the decisions for all the aspects of the business, and they must come to an agreement every time. If both partners cannot reach an agreement, and neither is willing to compromise, the partnership could become dysfunctional. If that were to occur, the chances of continuing to run a successful real estate investing business together are small. This explains why it’s important to first determine whether you can rely on your partner. You need to select someone you know you can work with, someone you can trust to make the important decisions, someone with the business’s intention at heart.
3. Higher Risk of Disagreement and Miscommunication
While communication has always been part of any successful endeavor, it takes center stage when you’re running a successful real estate investing business with a partner; constant and effective communication within a partnership is absolutely essential. With a partner sharing both the tasks and profits from the work you put in, there will now be a much higher risk that disagreements and miscommunication will come about. All issues— from how profits will be shared to how much liability each partner will accept— must be ironed out in detail before entering into any kind of agreement. One of the biggest reasons behind a failed partnership is poor communication that results in disagreement. And if it cannot be resolved, a disgruntled partner may quit, causing severe setbacks or even total failure.
In Conclusion
While one can cite a lot of examples of successful real estate investing partnerships, there are also a vast number of failed partnerships. If your partnership experiences any of these three significant drawbacks, it could potentially leave one or both of you feeling disappointed and your business direction will have to change. This is why keeping yourself informed and getting help is important while you’re still mulling over the decision to bring on a partner. This will make you feel a lot better and more confident in whatever decision you arrive at.
At Real Property Management Innovation, we can help you assess your specific situation and offer the information and support you need to figure out if bringing on an investing partner is the smart thing to do. We give valuable industry insight and guidance to help you keep your investment goals on track no matter what path you decide to go on. Contact us online or call us at 516-570-9275 to learn more.