Many would-be investors find themselves asking the following question: How do I access the capital or the expertise I need to make an investment?
For some investors, co-investing with a partner is a great solution as the approach helps investors to leverage the capital, experience, skills, or connections of their investment partners. For some, this may even enable them to purchase a property without a deposit. However, there are a number of significant elements that need to be considered before investing with a partner. Read on to learn more.
How does investing with a partner work?
Investing in property with a partner works in much the same way as any property investment. The investor finds a property that they think will create attractive returns in the future, then they find the necessary capital and make their purchase.
However, unlike with an individual investor, investing in a partnership involves the input of both parties — and a democratic approach, at least to some extent. You will need to make decisions together, and agree upon strategies for the good of the partnership. You will also share the profits you make with this partner.
Things to consider when investing with a partner
The partner relationship
What is the relationship between you and your partner in investment? You might decide to invest with a spouse or a family member, or perhaps simply a friend.
On the other hand, you might enter into a more professionally-based partnership because you offer something the other party does not have, or vice versa. For instance, you might be able to put up more of the required capital, while the other partner provides more of the investment expertise.
This may not seem important, but it is. This is because, while you may feel more comfortable investing with someone you already know well, being able to leverage the right levels of capital or expertise is more crucial to the success of the investment.
Other advantages in investing with a partner may be that you are able to better access strategic properties known to your co-investor, or one is better able to manage the property. Because of this, investing with a co-investor can be more suitable for less experienced investors or those who lack access to capital.
The type of partnership
Investing in a property with a partner can take a number of forms, and it is important to decide which form your partnership will take before you begin.
The most common types include the following examples:
- 50/50 partnership - While the actual splits may vary, a simple 50/50 split can be used as an example. In this type of partnership, everything is split evenly, including profits, capital investment, and duties. The percentage of the split can be adjusted depending on the value provided by each investor.
- Capital partners - A limited partner may have the capital but not the required experience to invest confidently. Limited partners may have less power of the management of the investment.
- Management partners - The inverse of a capital partner, a management partner may have the experience but not the capital. It is this partner who will manage the day-to-day requirements of the investment.
The roles and responsibilities of each investor
The definition of the limited and general partner listed above are simplistic ones designed to illustrate the types of partnership and partners that exist in investment. However, in reality, partnerships may be a little more complex than this.
It is important to outline the roles and responsibilities of each partnership before you begin so each member of the partnership understands what is expected of them. This is also true for 50/50 partnerships, where there are no clear-cut guidelines for who needs to take care of what.
The investment aims of each investor
When considering purchasing property with a co-investor, be sure to confirm and discuss investment aims ahead of time.
One consideration may be the financial aims of the property investment. Property can provide immediate rental income and long-term profit from a sale. However, rental income may result in a diminished sale price further down the line, or may make it impossible to conduct refurbishments and improvements that could transform the property into a more appealing prospect, which can cause conflict if this disrupts the aims of the unexpecting investor.
Another aspect which may impact aims of investors is the ideal holding period. In some cases, an investor may be looking to recall their capital earlier in order to capitalise another opportunity such as starting a family, buying a house or moving city. This may conflict with the aims of longer-term investors who are looking to secure their investment for the long term.
Partners need to sit down and discuss their respective aims before any investment takes place. Leaving this conversation for later may lead to a partnership that is pulling in different directions.
Investing Effectively, Together
Remember, the above factors are just a few factors to consider. Provided that you enter into the partnership in the right way — with the right objectives and with the right person — this can be a great way to begin securing your financial future or grow your investment portfolio.
Thinking of investing in property but don’t have a deposit? We’ll help you get into an investment property. Co-invest with Invex to get onto the property ladder sooner, or expand your portfolio. See how it works here.