Working with one or more partners on a real estate deal is frequently a wise decision, if not a necessity. For beginning investors, taking a partner helps offset the risk of even a small investment. More experienced real estate investors may want to take on partners for the same reason, since as the deals get bigger, the risk becomes greater. Furthermore, individual investors can often benefit from the wisdom, experience, and diverse perspectives that partners can bring to the table.
But of course, there are pitfalls to the concept of partnership. Many friendships and even familial relations are ruined due to misunderstanding, negligence, incompetence, or just plain bad luck associated with doing business - not to mention the financial impact of partnerships gone wrong. To avoid these dire consequences, you should always have a formal partnership agreement drafted by an attorney, and you should always establish your partnership as an official, legal business entity.
General Partnership - Just Say No!
A general partnership is established by the simple act of doing business. It does not have to be registered with any governmental body, although it can be formalized with a written agreement. Legally, there is protection for you from the liabilities your partnership creates, which means that your personal assets could come under attack by litigants against your business. Furthermore, your business assets could could be seized for actions related to the misdeeds of your partners. In other words, do not operate as a general partnership if you engage in a continuing business relationship with any partners.
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