Investment Property: To Partner or Go It Alone
photo © 2007 Scott Maxwell | more info (via: Wylio)
One of the options you have as a property investor is to buy the property by yourself and take all the risk and reward or partner with one or more individuals. Now that I’ve decided I want to focus on ROI with a cashflow neutral approach, I can begin thinking whether there are others I know who hold a similar mindset and are in a position to put the time and money into this endeavor. Additionally, I could consider joining a local real estate investment association. You can actually search for these at the REIA website. There’s a lot to be said for learning from someone who’s done it before, and there’s active groups in my community.
If you’re going to partner, you definitely need to insure you’re the same kind of investor and have similar expectations for the type of property you want to buy and the holding period. Maybe one of you is handy with repairs while the other is better with numbers so you both can bring something beyond equity to the table. This is a great way to reduce your risk and provide a lower cost of entry. For me however, it makes me tied to someone else’s potential financial volatility for up to 15 years. For me that kind of risk is unacceptable. I will be going it alone, even it means buying a smaller place, taking longer to save for the down payment, and putting more of my money at risk to purchase the property.
Regardless of whether you partner or not, one thing you need to definitely do as a real estate investor is take the time to set up a limited liability company (LLC). When you do this, you basically protect your assets as an individual should anything happen regarding your property where you get sued. As long as the LLC that you run owns the property, only its assets are at risk. Your personal assets are safe. Each state has their own rules about setting up an LLC, but most are fairly straightforward and cost a nominal fee to establish. Once you have the LLC established, you can then call the IRS and get a unique tax identification for your new company.