Property Partnerships
Pose Plenty of Problems

Question: I am considering a real-estate investment partnership in which I will use my credit to finance the purchase of single-family homes for rent while my partner provides the maintenance and property-management services. The properties will be sold after a set period of time, and the profits will be split equally. Are such partnerships common? What are the pitfalls surrounding these arrangements?

-- Bruce, Cleveland

Bruce: Such partnerships aren't common, but they aren't exactly uncommon, either. Technically called shared ownership, such deals most often are done with one party living in the property and taking care of the payments after the other put up the cash for the purchase. But there is no reason this can't be done for investment purposes as well. When carefully arranged -- with the help of a tax specialist -- it can allow for shared tax benefits.

The problems that could arise are the same as those that could affect any other partnership. The person handling operations might not be on the ball, and this could quickly turn a profit into a loss. Or the person putting up the cash might want to become more active. Then there is the issue of when to sell and how to divide the profit -- or loss.

Having an attorney come up with a rock-solid partnership agreement in advance will help alleviate some of these problems, but not all. I have entered into real-estate deals with partners, but I prefer doing things on my own. You may end up feeling the same way.

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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