There are many ways in which to invest in real estate, but historically rental real estate investment has funded millions of comfortable retirement lifestyles. There are also different rental property investment arrangements available to investors, with partnerships, S-Corporations, and LLCs as choices.
There are positive features of each of those business structures for the rental real estate investor, but there are negatives as well. One concern of many rental real estate investors is in getting into long-term business relationships where personalities and life events can force change. Another challenge of these type of arrangements is in the necessity to structure them for multiple profit shares. The rental property purchase volume usually must increase to allow volume to overcome lower profit shares per investor.
If the negatives are discouraging rental real estate investors from entering those business arrangements, is there a partnership that can work for the investors who want to work with someone for deals? Many who would like to become rental property investors have the money and the desire to own and manage properties, but not necessarily the property location or negotiation skills necessary.
The answer could be an informal partnering of the rental real estate investor and a wholesaler with the skills necessary to deliver properties that will cash flow well and appreciate in value. This partnership arrangement does not need to be documented, merely a handshake and the understanding that each of the investors will profit from their deals together. As long as the wholesaler delivers viable properties and the rental home investor is able to purchase them, the arrangement is successful.
The real estate wholesaler is interested in short-term deals and the quick turn of money. Often, they do not have a lot of cash, and they may be using transaction lenders or creative assignment contracts to control the property until turning it over to the rental investor customer. The wholesaler can do quite well if they have the skills in marketing, research, and negotiation to deliver viable rental properties to the rental real estate investor.
One challenge for the wholesaler is in having a reasonable certainty of a ready buyer for a property they commit to buy with an assignment contract or that they buy with transaction lender funding. The primary challenge for the rental real estate investor, assuming they have the cash or suitable funding in place, is in locating suitable properties. When a wholesaler with the appropriate expertise can consistently deliver suitable real estate investment deals, the rental investor will be ready to take them and close quickly. Skills the rental real estate investor will value in the wholesaler include:
- Marketing expertise to locate as many potential deals as possible.
- A knowledge of the local rental real estate market, prevailing rents, and rental investment and management expenses.
- The ability to negotiate a deal with a home seller that will result in their profit in the middle while delivering a viable rental real estate investment.
When these two individuals can work together with the investment and profit goals of each made clear to the other, there can be a mutually profitable relationship. While it is a short-term relationship for each individual deal, the long-term relationship can reduce risk and increase rewards for both participants.