Avoid These 3 Mistakes When Seeking Cash Partners for Real Estate

Think about it... It costs more to buy a single family residential home than it does to plunk down the cash to buy a share of stock or an ounce of gold. This reality of investing leaves many beginner investors wondering whether or not they should find cash partners for real estate when they're ready to buy. After almost a quarter century in the property business, we can say the answer is an unqualified "yes." Except when it's "no." Or perhaps we should say "yes" but with a few caveats. Nobody wants to be left holding the bag when a real estate deal goes bad, so here are three mistakes to avoid.

1. House by House Only: You might think you've found the greatest partner since Batman took in circus performer turned Boy Wonder (AKA Dick Grayson) but don't, under any circumstances, add their name to your Limited Liability Company. In other words, don't make them a 50% partner in your entire business venture. Want to partner on a specific house? Fine. Do it with our blessing but keep the arrangement on a house-by-house basis only. The problem with making a cash partner an equal on your LLC is that it becomes hard to get rid of them if something goes wrong and you find out they're actually sort of slimy. Partnering on a house-by-house basis allows you to isolate and contain the financial damage generated by choosing a bad partner.

2. Get it Writing: While they didn't invent writing just so real estate investors could outline their agreements with business partners, it makes a lot of sense to take advantage of a written contract. For all practical purposes, if it's not in writing, it might as well not exist. Even though the law recognizes a handshake as a binding agreement, it can get tricky to prove in a court of law. Doesn't matter if it's your brother, mother, or dear old grandmother, write down such particulars as how the profits are to be split and who contributes what to the deal. Don't say we didn't warn you!

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