What do you need to know about the financial side of setting up a real estate investing partnership before you begin flipping San Diego houses?
There is plenty of financial advice pertaining to flipping San Diego houses, but tips for structuring a real estate partnership are harder to come by. Whether you love or hate the idea of having a partner, more investors will find them to be a necessity that is vital for survival.
Establishing a partnership for flipping San Diego homes can be very simple. Everyone is most likely going to be amicable and optimistic at the beginning, but unless structured right from day one, an array of potential hazards can wreak havoc on an investor’s finances.
So what steps must be taken to establish a good partnership for flipping San Diego houses?
1. Formalize It
A handshake agreement or articles of incorporation scribbled on the back of a napkin can seem fine at the beginning, but rarely help when there are issues. Forming an official partnership, LLC, or corporation can reduce taxes, minimize outside liabilities and boost returns. Therefore, it is important to have the partnership officially recognized.
2. The Split
There are endless ways to split up the proceeds, but one of the most common scenarios consists of partners dividing the company in half. This is generally a terrible idea, in terms of stock holdings. Someone needs to have that deciding vote. Toss a coin if you have to, but one of you should have at least a 52% majority holding, according to most accountants.
3. Setting The Exit Rules
While you may dream of growing old and rich together, there are endless reasons why a partnership may end early and unexpectedly. What happens to those shares? Should the other partner have first right of refusal to buy them, as to avoid a nightmare partner coming on board?
4. Who Does the Books?
The overly optimistic partner who is helping you flip San Diego houses will not always be the best match for the title of bookkeeper. In fact, the title of bookkeeper may become a point of contention between partners. Maybe consider outsourcing it?
5. Key Person Insurance
Perhaps your partner is bringing essential skills, contacts or time to the table. Without them, the business could be hit hard. Key person insurance can be used to fill in these gaps.