Working with Partners: What are the Risks?

I’ve already said that working with partners is a great way to minimize risk. However, that doesn’t mean that you say goodbye to risk completely. While sharing the responsibilities (financial and otherwise) with partners can minimize your overall risk, there are still problems that can come with adding other people into your business plan.

When you work with other people in a real estate investing scenario, the more people you add to the project the less control you have. Depending on how the deal is structured in your joint venture agreement, your vote may or may not be controlling, and the opinions of your other partner(s) may weigh more heavily.  It’s very important that you know how important having the deciding vote is to you so that you can structure your deal accordingly.

The other issue is that can come up with partners is that the more people you add to a project, the more of a chance there is that something could go wrong with one of them. Maybe they turn out to be not as helpful as you thought, or maybe an outside influence like an illness or money issue comes up. It’s so important that you do your due diligence before taking on a partner, and account for any potential problems in your joint venture agreement. Discuss issues of conflict and conflict resolution before signing on the dotted line.

Overall, I still think that working with a partner (or partners) is better than going at it on your own, but don’t be fooled into thinking that you’re totally safe. Make sure you’ve got common goals, similar work ethics, and an agreed upon exit strategy. A well-thought-out joint-venture agreement will help to sort out the details and keep you safe.

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