Do you need a formal structure for your real estate partnership?

by | Aug 23, 2022 | Commercial real estate

Whether you use it for active or passive income, real estate in the Bay Area can be a lucrative investment. Still, if you want to compete in the hot real estate market, you need access to capital that you simply may not have. Having business partners may be the answer.

If you are going to go into the real estate business with family members or close friends, having a formal structure may seem silly. After all, you may feel certain your friends and relatives have your interests in mind. Regrettably, even if that is true now, it may become untrue in the not-to-distant future.

The importance of partnership agreements

Forming a partnership is often an effective way to set realistic expectations. When you set up your partnership, you have the opportunity to negotiate a comprehensive partnership agreement. Not only can this agreement outline each partner’s rights and responsibilities, but it can also give you a framework for ending the partnership or forcing out an uncooperative partner.

The nature of conflict

Our office has a unique process that is designed to minimize our clients’ risk of getting into a lawsuit, or even a dispute, with their partner(s). The key to overcoming conflict with your real estate partners, though, is knowing how to address it. Therefore, when you form your partnership and write a partnership agreement, you must include a dispute resolution provision. This type of provision tells you exactly what to do if you and your partners disagree.

Even though you may be itching to purchase property and start your real estate business, you probably cannot afford to overlook the technical details. Ultimately, because you cannot predict the future, having a formal business partnership usually makes a tremendous amount of sense.

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