Real Estate Investors are Teaming Up to Adapt to a Costly Housing Market
By Gordon Robbins @ Real Estate Daily
February 26, 2018

Real estate investing is dynamically changing from month-to-month. New technology and innovative business are transforming how people invest in real estate, and even the most veteran investors are rethinking some of their strategies.

High home prices are just one of the factors that are currently forcing real estate investors to reconsider how they approach investment. Experienced investor Maureen Wiener told realtor.com that she likes flipping alone because she prefers full control of the investment. Lately, however, Maureen has begun to see the value in partnering up for future investments.

Key Takeaways

  • High real estate prices are forcing some investors to partner up with each other
  • Partners share the maintenance responsibilities and any risks involved
  • It is essential to find an experienced partner with complimentary skillsets for your own
  • Business partnerships can test relationships and easily turn sour during stressful situations

Excerpt

More and more small real estate investors such as Wiener are working with partners these days—and often, multiple ones. As prices have rebounded from their lows during the housing crash, some investors find they need to pool funds with friends, relatives, or others to be able to afford their next flip or rental property. While they’re sharing the eventual rewards, they’re also sharing the risks—all the better if a project goes belly up, a flip doesn’t sell as anticipated, or a tenant doesn’t pay rent.

And, just maybe, with a partner or two onboard, they can avoid borrowing from a bank altogether.

Partnerships are especially common for real estate investors who want to keep and rent out their properties. That’s because financing is harder to come by for rentals than for house flips, says David Hicks, co-president of Dallas-based HomeVestors of America (the company known for its “We Buy Ugly Houses” franchises).

Prices are rising, so partners can make all the difference – As the economy continues to improve, home prices continue to rise. And that makes flipping a higher-risk prospect. But that hasn’t slowed down investors eager to cash in.

“People are more confident in the housing market,” says Daren Blomquist, senior vice president of communications at ATTOM Data Solutions, an Irvine, CA–based real estate data company. And with the financial crisis fading from recent memory, they’re less worried about another housing crash.

About two-thirds of the nation’s single-family rentals are held by mom-and-pop investors who own just a property or two, according to ATTOM Data.

Now that the market has rebounded, those investors are paying more, and taking out bigger loans, for their properties. Hence the need for collaborators.

Higher home costs aren’t the only reason to team up – Money isn’t the only reason to find a partner. Scott Trench, who has been investing in Denver real estate since 2014, bought two duplexes by himself. But he recently teamed up with a friend to buy a four-unit building.

Sure, he wanted to split the higher cost of the larger building, but he also wanted to share the maintenance work with his friend. He says maintenance, such as dealing with repairs, at the rental properties takes several hours a month.

“I trust his judgment,” says Trench, who is also vice president of operations for BiggerPockets, a website devoted to real estate investing.

John Warren, a real estate broker and investor in Chicago, is also cashing in on his new partner’s skills. Warren started out investing on his own in 2015, buying a four-unit building.

But he teamed up with an accountant he met at a BiggerPockets meetup, and in 2016 they invested in two multifamily properties—one in a Chicago suburb and the other in South Bend, IN. Warren says he couldn’t have afforded both rental properties on his own.

But, more important, his real estate background dovetails with his partner’s financial and business skills. His partner helped him look at the venture in a more businesslike way, suggesting that they hire contractors—and write off the cost—rather than spending time on DIY chores.

However, there are a few perks to going solo – Still, partnerships aren’t for everyone. Many investors want to make all the decisions on how much to spend, what to buy, and even which tile or paint color to use.

And it’s all fun and games while everyone’s making money, but relationships can be strained if the investment doesn’t pay off as planned.

“It can test the limits of friends and family,” says Cisterna. “And it can be a complicated situation if things go sideways.”

View the original article at realtor.com