Partnering can introduce considerable benefits to an investment deal. However, it can also introduce considerable headaches. There is nothing wrong with partnering, but just be smart about your decision to do it!
When to Use An Investment Partner
Whether you should use an investment partner or not really depends on a few different factors. These can range from:
- The size of the deal. If we are talking about a small single-family rental property (buy and hold only, no flipping), an investment partner might be more of a pain than not. But if we are talking a multimillion dollar commercial deal, then I would think it to be rare not to use an investor partner (if not use several). I can’t personally speak for the latter, but it makes total sense to me why partnering in those cases is much more common.
- Returns on the deal. More specifically than the size of the deal and when the size really matters is the returns. That small single-family home, if it only produces $200/month in cash flow, splitting that with a partner might make profits a little skimpy when it would be better to just use your own money instead and keep the cash flow for yourself.
- Why you need the partner. Are you using an investment partner because you really need one or because it sounds fancy or you just want your buddy in on a deal with you? Are you trying to lessen risk by using a partner? You’d be surprised at how many people I hear talking about using investment partners when they really don’t need to. No harm necessarily, but figure out if you actually need a partner first.
The Absolute Best Time to Use an Investment Partner
Ooh, ooh, when, when?!
When you couldn’t otherwise do the deal.
Maybe you don’t have enough cash, or maybe you can’t get the financing under your name, or whatever the circumstance may be… assuming it’s actually a good deal, don’t miss out on it just because you are missing something required to buy into it.
Always do what you need to do to make the deal happen. However, if you can get away without using a partner, I recommend that instead (unless we are back to talking about big commercial deals where partnering greatly increases the returns for everyone). Why do I recommend not using a partner if you don’t have to?
Risks with Using An Investment Partner
Okay, I can hear you already saying you already know the risks associated with using an investment partner.
A couple of them are obvious, for sure, but a couple may not be so obvious. So hear me out and be sure to consider all of these before you partner with anyone.