| "With the market where it is and interest rates where | | | | commodity. Managing the property and the tenants |
| they are, now is a good time to buy." This catch | | | | can take time away from work, family, and one's |
| phrase seems to be common talk around water | | | | personal life. When discussing how much 'time' each |
| coolers these days. Hearing this over and over and | | | | partner is expected to give, be very clear with roles |
| with the real estate market where it is, have you been | | | | and how much time is necessary for each partner to |
| thinking of chipping in with a friend and buying a rental | | | | devote for the proper performance of his/her duties. |
| property? If you have, there are many things you | | | | 6. Management and Authority- The more people you |
| should consider when entering a partnership, first and | | | | pull into a partnership, the more voices there are to be |
| foremost is this: get it in writing. | | | | heard. This discussion around management and |
| While you and the person(s) you are going into the | | | | authority must be had when deciding on the type of |
| partnership with have been friends since grade school | | | | partnership you are going to establish. Whether the |
| or college, and while you have always had each | | | | management structure is side by side leadership or a |
| other's backs, a partnership is a business decision and | | | | top down hierarchy, the clearer this is spelled out in the |
| should be treated as such. The 'formality' of the | | | | agreement the less confusion (and therefore conflict) |
| contract can depend upon the parties involved, but | | | | there will be down the road. |
| make sure that it is clear, concise, and agreeable to all. | | | | 7. Withdrawal or Death of Partner- While all |
| While you can purchase, Google, or develop any | | | | partnerships start out with longevity in mind, different |
| number of partnership agreements, here are a few | | | | life circumstances could dictate when a partnership is |
| suggestions as to the 'must haves' in any agreement: | | | | going to end. In order to be best prepared for any |
| 1. Type of Partnership- it is important to delineate the | | | | situation, make sure to include the specifics around a |
| type of partnership you are looking to create. Whether | | | | partner's early withdrawal or untimely death. |
| you choose to create a general partnership, limited | | | | 8. Dissolution of Partnership- At some point every |
| partnership, limited liability partnership (LLP), limited liability | | | | partnership must come to an end and the assets the |
| limited partnership (LLLP), or limited liability corporation | | | | Partnership liquidated, the debts paid, and the surplus |
| (LLC), be sure to do your research and choose a | | | | divided among the Partners. Include a clause that |
| format that fits what it is you are looking to | | | | contains the percentages of ownership, and how the |
| accomplish. | | | | debt will be handled, as well as how the surplus will be |
| 2. Name of Partnership- while naming the partnership | | | | paid. |
| may seem trivial, it is important to the overall | | | | Entering a Partnership agreement can be a very |
| understanding that this is a business venture and | | | | positive experience. Over the past 10 years, I have |
| should be seen, discussed, and thought of as such. | | | | been involved with a few different types of |
| 3. Term of Partnership- getting involved with | | | | partnerships: an informal general partnership, and more |
| purchasing rental properties can be a great | | | | formal LLP, formal LLC, and formal general partnership. |
| experience, but can also take a toll on the investors' | | | | While each venture was unique in terms of its |
| time, money, and patience. When times get tough and | | | | make-up, challenges, and successes, all were learning |
| money gets tight, something such as a rental property | | | | experiences that grew upon the other. The success I |
| can easily be the first thing to go. In order to not have | | | | have experienced has been due to open |
| certain parties get 'stuck' with sole responsibility, | | | | communication and clear, consistent, and documented |
| delineating a very clear start and end date by which | | | | guidelines. |
| each partner is financially involved is important to | | | | With all of the challenges and successes that |
| keeping expectations clear throughout the full term of | | | | accompany this type of venture, much planning and |
| the venture. | | | | thought must be put into creating the best opportunity |
| 4. Treatment of Capital- at the end of the day, money | | | | for success. While no one can predict the future, the |
| is money and everyone is looking to get paid. Be sure | | | | importance of being proactive in terms of preparing for |
| to be very clear as to who invests how much, | | | | any situation that may arise cannot be understated. |
| especially when you have multiple partners or silent | | | | Taking the time to prepare, sign, and follow a written |
| partners involved. Be very clear with the percentage | | | | document outlining the 'rules and regulations' of the |
| of capital each partner owns, the terms around | | | | Partnership you are entering into can help you to keep |
| withdrawal of capital, and the percentage distribution of | | | | communication lines open, keep expectations clear, and |
| any net profits and losses accrued. | | | | take steps to be successful. |
| 5. Time Devoted to the Partnership- Time is a precious | | | | |