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Starting a real estate investment business with a partner(s) that focuses on multifamily and/or BTR-SFR properties can be an exciting and rewarding venture, but it’s important to do appropriate due diligence before committing to such an endeavour for several reasons.
As is well-known, multifamily properties can provide a steady stream of rental income, which can be a reliable source of cash flow or offer economies of scale, meaning that managing several units under one roof can be more cost-effective than managing multiple single-family properties. Also, multifamily properties may offer more flexibility in terms of financing and investment strategies compared to other real estate investments.
But, as important as finding the right properties, is finding the right partner so that all matters pertaining to the proposed business are clear and the chances of any problems occurring are minimised.
Clearly, asking the right questions can help you determine if a potential partner is a good fit for your business goals and investment strategy for your multifamily investments, so here are 10 questions to ask a potential partner before starting a real estate investment business:
What are the primary investment goals?
Understanding your potential partner’s investment goals is crucial to ensuring that you are both on the same page. Are they looking to make a quick profit or are they interested in a long-term investment and steady investment returns? Are they willing to take on more risk or do they prefer a conservative approach? Discussing these goals upfront can help you determine if your partner’s investment style aligns with your own.
What sort of experience with multifamily real estate investing does each partner have?
Experience in real estate investing is valuable, but it’s not the only factor to consider when choosing a partner. However, it’s important to know what your partner’s level of experience is, both with properties but also some of the necessary paperwork involved and how it may complement or differ from your own. If your partner has more experience, they may have valuable insights and connections that can benefit the business. On the other hand, if they are new to investing, they may bring fresh ideas and perspectives.
What is the real financial situation of each partner?
Real estate investment requires capital investment, so it’s important to know your partner’s financial situation. Ask about their credit score, net worth and available funds for investment and their ability to deal with carrying costs. Knowing your partner’s financial situation can help you determine how much risk they are willing and able to take on.
What is the preferred investment strategy?
Different investors have different investment strategies, so it’s important to discuss and agree on a strategy that works for both partners. Some investors may prefer to focus on flipping properties for a quick profit or a certain type of property, whilst others may prefer to hold onto properties for rental income. Discussing your preferred investment strategy ahead of forming a partnership can help determine if you and your partner are a good fit.
How will responsibilities be divided?
Dividing responsibilities is essential to ensuring that the business runs smoothly. Discuss how you and your partner will divide responsibilities, such as property management, financing, and marketing. Make sure that each partner has a clear understanding of their role and that their responsibilities align with their strengths and that they can execute their role effectively.
What sort of time does each partner have available to commit to the business?
Real estate investment requires a significant amount of time and effort. It’s important to know your partner’s availability and whether they have other commitments that may interfere with the business. Discussing availability upfront can help you determine if your partner has the time and dedication needed for the business to succeed.
What is each partner’s risk tolerance?
Multifamily and/or BTR-SFR investment (as does all real estate investment)t carries risk, so it’s important to know your partner’s risk tolerance and how they might react to different stages of the real estate cycle. Discuss how much risk each partner is willing to take on and how you will manage risk. Make sure that your partner’s risk tolerance aligns with your own and that you have a plan in place for managing risk.
What is the exit strategy?
Having a pre-determined exit strategy is important in multifamily real estate investment. Discuss with your partner what their preferred exit strategy is, whether it’s selling the property, refinancing, or holding onto it for long-term income. Make sure that your exit strategies align and that you have a plan in place for executing them.
How will the parties best communicate?
Effective communication is essential to any business partnership. Discuss how you and your partner will communicate, whether it’s through regular meetings, email or phone calls—and how often. Make sure that both partners are comfortable with the communication plan and that it is sufficient for the needs of the business.
How will disputes and disagreements be handled?
Occasional disagreements are bound to arise in any partnership. Discuss how you and your partner will handle disagreements and how you will make decisions. Make sure that you have a plan in place
Download and read our FREE e-book: 25 Fundamental questions to ask a Syndication Sponsor before making your investment
CPI Capital is a great believer in forming partnerships in multifamily investing as these can offer several benefits, including access to more capital, the ability to divide responsibilities, and the opportunity to leverage each other’s strengths and expertise. Additionally, partnerships can provide a sense of accountability and help mitigate risk through shared decision-making and oversight.
Such partnerships can take many forms, such as the ones CPI Capital form with our multitude of passive investors and other professionals we work with on multifamily and/or BTR-SFR syndicated investments!
COO, Co-Founder CPI Capital