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Working with one or more partners on a real estate investing deal is often a wise decision. For beginners in real estate investing, taking a partner helps balance the risk of even a small investment. More experienced real estate investors might desire to take on partners for the same reason, since as the deals get bigger, the risk becomes greater. Moreover an individual investor in real estate could frequently benefit from the knowledge, experience, and diverse viewpoints, which partners could bring to the table.

But of course, there are still pitfalls to the idea of partnership. Many friendships and even family relations have been insolvent due to misunderstanding, negligence, ineptitude, or could be just plain bad luck related with doing business, not to mention the economic impact of partnerships left wrong. To avoid these awful cost, you need to have a formal partnership agreement drafted by an attorney, and you must always start your partnership as an official, legal business entity.

General Partnership

A general partnership can be established by the simple act of doing business. It does not have to be registered by any governmental or official body, though it could be further formalized with a written agreement. Legally, there is defense for you from the liabilities your partnership generates that means that your personal assets can come under assault by litigants beside your business. Additionally, your business assets can even be seized for actions related to the offenses of your partners. In other words, do not work as a general partnership if you are engaged in an ongoing business relationship with any partners.

Incorporation

A well established superior business entity and the most popular are called a corporation. By incorporation, you with your partners are establishing a legally distinct business entity with its own equal social security number. Thus, unlike a general partnership, incorporation is lawful separate from any and all "partners", or more precise could be "shareholders".

There are many benefits to incorporating. Since they are lawfully distinct, shareholders could not be held responsible for the actions of the corporation. In other words, if a corporation in which you're partners is sued, your personal assets are safe. Think about it - if you own any stock, could you lose your house if the company is sued? Of course not, your losses are limited to your investment. There are some cases in which partners could be held apt in a small corporation, but in many cases you would be protected from liabilities of the business and, more significant, the misdeeds of your business partners and employees.