Small Investors Are Looking to Partner Up
February 14, 2018
As property prices rise, more small real estate investors are reportedly are teaming up with others so they can afford their next flip or rental property. They’re pooling funds with friends, relatives, or other investors to pay for their next property, and that means sharing the risks and profit that go along with that plan.
The most common partnerships are among those who want to keep and rent out their properties after fixing them up, because financing is harder to come by for rentals than for house flips, says David Hicks, co-president of HomeVestors of America, known for its “We Buy Ugly Houses” franchises.
About two-thirds of the nation’s single-family rentals are held by mom-and-pop investors who own just one or two properties, according to ATTOM Data Solutions, a real estate research firm. Individual investors purchased 16 percent of homes in December 2017, up from 14 percent a year ago, according to the National Association of REALTORS®.
Prices for investment properties have surged 25 percent between 2014 to 2016, according to NAR’s most recent survey of home buyers. The nationwide median price of an investment property in 2016 was $155,000. But higher home prices aren’t the only reason to partner up. John Warren, a real estate broker and investor in Chicago, purchased a four-unit building on his own in 2015, but has since teamed up with an accountant. They purchased two multifamily properties in 2016—one in a Chicago suburb and another in South Bend, Ind. Warren says his real estate background is a good match to his partner’s financial and business skills.
“We’re able to work more efficiently with two than with one,” says Warren. “It’s nice to have someone else on board."
But as with any venture, partnerships should be entered with caution. “A lot of people don’t understand the full risks and rewards of a partnership,” says Dennis Cisterna of Investability Solutions in Denver. “It can test the limits of friends and family. And it can be a complicated situation if things go sideways.”
Source: “Small-Time Real Estate Investors Team Up for Big-Time Profits,” realtor.com® (Feb. 13, 2018)
Updated: August 20, 2018