Partnership Agreement Helps In Real Estate Investment

Added January 11, 2007 by Ilyce R. Glink

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Summary: When you make a real estate investment with a partner you need to set up a partnership agreement outlining each partner's role and responsibilities. You should think twice before doing a real estate investment with a partner whose judgment you don't trust. The partnership agreement would also protect the partners, in case one tried to defraud the other, as could be possible with a quit claim deed in this case.

Q: I recently purchased some land with a partner. The land is in my name because I'm financing the deal, but he is a partner because he did all the legwork.

We intend to build houses on the land after getting some changes from the local zoning committee.

Here's the problem: While my partner is my friend, his character is somewhat questionable when it comes to money. He has suggested that I quit claim the property to him so that he can talk to builders more easily without having to get approval from me.

If I do this, would I lose all rights to the land? Can I quit claim the property for a period of time, like 2 months, and then regain the ownership rights down the line?

It's not likely he'll mess things up, but when it comes to money, people do strange things. By the way, I do travel quite a bit which is why it isn't that convenient for me to schedule meetings with builders.

A: This deal has trouble written all over this. How can I put it simply: Do not quit claim the property to your partner. He doesn't need to own the land to talk to builders. You and he are partners no matter who owns the land, right?

And, if you don't trust his judgment with money, I can't see why you'd hand over a huge asset to him.

But clearly this "partnership" hasn't been fully realized. You and he haven't talked through what each person's responsibilities are, and how the deal should be handled. Have you talked about how the profits will be split? Will you be reimbursed for the cash you spend first and then what's left will be shared?

Your friend sounds nervous, and rightly so. You should talk to a real estate attorney who can help you draft up a partnership arrangement with your friend that spells out who owns what, who is entitled to what and what responsibilities each of you have.

By the way, it's okay to be an investor but if you're too busy to meet with builders, you're placing a lot of trust in a guy who you say has questionable judgment when it comes to money.

No matter where you are in the world, you'd better be ready to spend a lot of time working on the deal and making sure that there are no side deals involved that will siphon off cash.

Jan. 11, 2007.

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